It is the worst day for US markets since June 2020. The New York Stock Exchange closed sharply on Tuesday, in a market ravaged by a higher-than-expected US inflation indicator, which flooded the optimism of recent days and bodes well a drastic increase in rates than expected. The Dow Jones fell 3.94%, the Nasdaq index fell 5.16% and the broader S&P 500 index fell 4.32%. “It was a crazy day,” commented Greg Bassuk of AXS Investments.
The indices were pushed red by the release of the CPI price index which revealed a slight 0.1% increase in prices in August, versus a 0.1% decline expected by economists. In one year, inflation slowed to 8.3%, but lower than the 8.0% expected by the market.
For Edward Moya, of Oanda, investors fear that “they were too optimistic in predicting the end of the Fed’s monetary tightening cycle” (US central bank). “The market sees inflation going in the wrong direction, which would force the Fed to maintain its offensive stance, or even go even further,” noted LPL Financial’s Quincy Krosby.
One point rate increase possible
Traders now go so far as to attribute a 34% probability to a one percentage point hike in the Fed’s key rate at its next meeting, September 20 and 21, and no more 0.75 points, which no one had considered until today . “The market is concerned that the Fed will drag us into a recession or take over the system and deprive it of liquidity,” Quincy Krosby noted.
Additionally, in Tuesday’s report, traders saw signs that inflation was rooted in the US economy, particularly food prices. “The problem is knowing how much these high prices will weigh on the real economy and on consumers”, said Greg Bassuk, to the point of crushing demand, which will also be penalized by the tightening of credit and financing conditions.
Plunge into tech stocks
The prospect of a more expensive credit market has torpedoed tech stocks, which more often than not have to borrow to finance their growth. All the Nasdaq giants suffer, in particular Apple (-5.87%), Amazon (-7.06%), Alphabet (-5.86%) or Meta (-9.37%), which fell to the lowest level since the early days of the coronavirus pandemic, in March 2020.
All the members of the Dow Jones are gone, with no sector able to float. Among the few to come out, Twitter (+ 0.80% to $ 41.74), greeted after the favorable vote, in the extraordinary meeting, of the shareholders in favor of the acquisition by Elon Musk, which the entrepreneur then reported.