U.S. stocks were moving higher early Wednesday morning, one day after an economic report released by the government caused a substantial drop in the markets.
The new data showed the consumer-price index rose 8.3% in August from the same month a year ago. That was down from 8.5% in July and 9.1% in June — the highest inflation rate in four decades. The figures show inflation is easing, but at a slower pace than investors and economists had anticipated.
Stocks suffered their worst day in more than two years after hotter-than-expected inflation data dashed investors’ hopes that cooling price pressures would prompt the Federal Reserve to moderate its campaign of interest-rate increases. Investors sold everything from stocks and bonds to oil and gold.
All 30 stocks in the Dow Jones Industrial Average declined, as did all 11 sectors in the S&P 500. Only five stocks in the broad benchmark finished the session in the green.
The Dow fell 1276.37 points, or 3.9%, to 31104.97. The S&P 500 declined 177.72 points, or 4.3%, to 3932.69. The Nasdaq Composite slid 632.84 points, or 5.2%, to 11633.57. All three indexes posted their steepest one-day losses since June 11, 2020.
The declines left the Dow industrials down 14% in 2022, while the S&P 500 has lost 17% and the Nasdaq Composite has retreated 26%.
Investors had eagerly anticipated Tuesday’s release of the consumer-price index, which provided a last major look at inflation before the central bank’s interest-rate-setting committee meets next week.
Expectations for the path of monetary policy have held sway over the markets as investors factor higher rates into asset prices and try to project how well the economy will hold up as rates rise.
Analysts had hoped officials would consider easing their pace of interest-rate increases if data continued to show inflation subsiding. The data undercut those hopes, seeming to settle the case for the Fed to raise rates by at least 0.75 percentage point next week.
After the report’s release release, stock futures fell, bond yields rose and the dollar rallied. Traders began to consider the possibility that the central bank will raise interest rates by a full percentage point next week.
Fed Chairman Jerome Powell said earlier this month that the central bank is squarely focused on bringing down high inflation to prevent it from becoming entrenched as it did in the 1970s.
With Tuesday’s declines, the S&P 500 is up 7.3% from its June low. While investors broadly expect volatility to continue shaking the stock market, some suspect the economy remains strong enough to avert a major leg lower from here.
Meanwhile, Asian stocks were lower Wednesday.
Hong Kong’s Hang Seng index lost 2.6% to 18,831.88 and the Shanghai Composite index declined 0.9%, to 3,234.18. Tokyo’s benchmark Nikkei 225 lost 2.2% to 27,991.82, while Sydney’s S&P/ASX 200 declined 2.4% to 6,839.50. In Seoul, the Kospi lost 1.5% to 2,414.26.