Stock market today: Dow sinks 1,276 points after alarming CPI report

Shares were crushed on Tuesday as the latest inflation update showed consumer prices remained high in August – dashing hopes that price pressures had peaked.

Looking at the numbers, the Labor Department said this morning that its Consumer Price Index (CPI), which tracks what consumers pay for goods and services, rose 8.3% year over year. the other in August. Although this is down from the year-on-year increases seen in June (+9.1%) and July (+8.5%), the core CPI, which excludes the more volatile energy and commodity prices food, rose 6.3% over the prior year period – more than the 5.9% jump seen in each of the previous two months. And month-over-month, core CPI accelerated 0.6%, much faster than July’s 0.3%.

“Like the payrolls report a few weeks ago, today’s CPI report showed that this year’s persistent inflation trends and an excessively tight labor market are taking longer than expected. to approach the levels targeted by the Fed,” said Rick Rieder, chief investment officer of BlackRock. Head of Global Fixed Income.

Today’s data will give the central bank “room to make another historically large rate hike of 75 basis points [at next week’s policy meeting]Rieder said. “The Fed’s desire to take a rate hike vacation almost definitely can’t materialize until the holiday season, and maybe a little longer now.”

Dustin Thackeray, chief investment officer at Crewe Advisor, echoes that perspective. “With today’s higher-than-expected CPI data, the Fed’s objective of attempting a soft landing has become more difficult,” he said. “To try to maintain the goal of price stability, the Fed will need to continue its stance of aggressive rate hikes, balance sheet reduction and hawkish rhetoric.”

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The sizzling inflation update triggered a stock market sell-off on Wall Street, with major stock indexes spiraling. The Nasdaq Compound plunged 5.2% to 11,633, while the S&P 500 Index (-4.3% to 3,932) and the Dow Jones Industrial Average (-3.9% to 31,104) suffered massive declines themselves. It was the worst day in the market since June 2020.

“Markets will likely continue to experience elevated volatility as this new information is digested and the Fed continues its attempt to tame above-target inflation,” Thackeray adds.

Other news on the stock market today:

  • Small cap Russell 2000 plunged 3.9% to 1,831.
  • U.S. Crude Futures slipped 0.5% to $97.31 a barrel.
  • The strength of the US dollar sent gold futures down 1.3% to $1,717.40 an ounce.
  • Bitcoin was not immune to the sell-off, with the cryptocurrency shedding 9.4% to $20,309.23. (Bitcoin trades 24 hours a day; prices shown here are as of 4 p.m.)
  • Large-cap tech stocks soared after this morning’s inflation update pushed the 10-year Treasury yield up 4.8 basis points to 3.41%. Apple (AAPL, -5.9%), (AMZN, -7.1%), Metaplatforms (META, -9.4%) and netflix (NFLX, -7.8%) were among the biggest declines of the day.
  • Rent the track (RENT) fell 38.7% after the online clothing retailer announced its earnings. While RENT posted a lower-than-expected loss per share of 53 cents on higher-than-expected revenue of $76.5 million, active subscribers were down 8% quarter-over-quarter. The company also said it would cut 24% of its workforce by the end of the fiscal year. “We thought the second quarter could present a strong consumer test amid a multi-year spike in social events (weddings, parties, travel),” says Credit Suisse analyst Michael Binetti, who downgraded RENT to Neutral (Hold). “The significant deterioration in active customer trends during the quarter suggests that RENT is more susceptible to macro pressure on the aspirational consumer than we had anticipated.”

Use fixed income games to hedge against inflation

According to Gargi Chaudhuri, head of investment strategy at iShares, one of the biggest concerns that surfaced in today’s inflation report was the 0.6% rise in core CPI. . The increase is mainly due to housing costs, she adds, and this lingering point of inflation could linger longer, with rents expected to rise even further as the home buying market cools. “House and rental prices account for 42% of core CPI inflation, the largest weighting of the CPI measure, due to their disproportionate share in most people’s budgets. “, continues Chaudhuri.

But the strategist says investors have options to combat persistently high inflation, with products such as short-term Treasury Inflation-Protected Securities, or TIPS, which are inflation-linked bonds via the CPI. “Investors should also consider investing in short-term bonds to replace cash or generate income in their portfolios,” she adds.

Those looking to augment the fixed income section of their portfolios can do so through bond mutual funds and bond exchange-traded funds (ETFs). On both fronts, many of our recommendations are aimed at countering the effects of rising prices. And best of all, our bond ETF picks do it at a low cost to investors. Check them.

Karee Venema was long AAPL and AMZN at the time of this writing.

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