A trader on the New York Stock Exchange (GETTY IMAGES NORTH AMERICA / SPENCER PLATT)
The New York Stock Exchange closed sharply lower on Tuesday, in a market ravaged by a higher-than-expected US inflation indicator, which has dampened the optimism of the past few days and suggests an even more brutal-than-expected monetary tightening.
The Dow Jones was down 3.94%, the Nasdaq index by 5.16% and the broader S&P 500 index by 4.32%. This is the worst session on the Nasdaq since mid-June.
“It was a crazy day,” commented Greg Bassuk of AXS Investments.
The indices plunged into the red since 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.
“The markets were shaken by this poor CPI and responded accordingly,” said Cornerstone Wealth’s Cliff Hodge.
For Edward Moya of Oanda, investors fear they “were too optimistic in predicting the end of the Fed’s 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.
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 worried that the Fed will drag us into a recession or take over the system and deprive it of liquidity,” noted Quincy Krosby.
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.
The specter of an even heavier Fed has pushed bond yields. The yield on 10-year US government bonds rose to 3.41%, up from 3.35% the day before.
The 2-year rate, more representative of market expectations in terms of monetary policy, jumped to 3.78% for the first time in nearly 15 years (November 2007).
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.
Another value to hold in hand, liquefied natural gas (LNG) specialist Cheniere (+ 3.07% to $ 165.67), the largest US LNG exporter, which is taking full advantage of the surge in the gas market and has raised its guidance for the full year.
Connected exercise bike and treadmill specialist Peloton slips (-10.32% to $ 9.91) following the announcement of the departure of its co-founder John Foley, who is leaving his position as executive president. He had already given up his position as general manager in February.