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US STOCKS-Wall Street slides as CPI data locks in another hefty Fed rate hike

US STOCKS-Wall Street slides as CPI data locks in another hefty Fed rate hike

Reuters · 09/13/2022 14:37
US STOCKS-Wall Street slides as CPI data locks in another hefty Fed rate hike

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U.S. consumer prices rise unexpectedly

Likelihood grows of a 100 bp Fed rate hike in Sept

Indexes slide: Dow 2.79%, S&P 3.10%, Nasdaq 3.90%

New throughout, adds NEW YORK dateline, changes byline

By Stephen Culp

- Wall Street tumbled in a broad sell-off on Tuesday after hotter-than-expected inflation data dashed hopes that the Federal Reserve could relent and scale back its policy tightening in the future.

The S&P 500, the Dow and the Nasdaq all veered sharply lower, snapping a four-day winning streak and erasing a sizeable chunk of recent gains.

Surging risk-off sentiment pulled every major sector deep into territory, with interest-rate-sensitive tech and tech-adjacent market leaders, led by Apple Inc AAPL.O, Microsoft Corp MSFT.O and Amazon.com Inc AMZN.O weighing heaviest.

The Labor Department's consumer price index (CPI) came in above consensus, interrupting a cooling trend and throwing cold water on hopes that the Federal Reserve could relent after September and ease up on its interest rate hikes.

Core CPI, which strips out volatile food and energy prices, increased more than expected, rising to 6.3% from 5.9% in July.

"This was another disappointment," said Mona Mahajan, senior investment strategist at Edward Jones in St Louis. "It's the old Charlie Brown analogy - every time we're ready to kick the ball, it's moved away from us."

"It's two steps forward and one step backwards and this may be a step back today."

Financial markets have fully priced in an interest rate hike of at least 75 basis points at the conclusion of the FOMC's policy meeting week, with an 18% probability of a super-sized, full-percentage-point increase to the Fed funds target rate, according to CME's FedWatch tool. FEDWATCH

"Bottom line, (the CPI report) only fortifies the Fed’s hand for a tougher inflation fight," said Peter Cardillo, chief market economist at Spartan Capital Securities.

Worries persist that a prolonged period of policy tightening from the Fed could tip the economy over the brink of recession.

The inversion of yields on two- and 10-year Treasury , regarded as a red flag of impending recession, widened further. US/

The CBOE Market Volatility index .VIX, often dubbed "the fear index," was set for its biggest one-day point jump since late August.

The Dow Jones Industrial Average .DJI fell 904.26 points, or 2.79%, to 31,477.08, the S&P 500 .SPX lost 127.23 points, or 3.10%, to 3,983.18 and the Nasdaq Composite .IXIC dropped 478.03 points, or 3.9%, to 11,788.38.

All 11 of major sectors in the S&P 500 were deep in red territory, with communications services .SPLRCL tumbling the most.

Consumer discretionary .SPLRCD, tech .SPLRCT and the tech subset semiconductor sector .SOX were suffering steeper drops than the broader market.

Declining issues outnumbered advancing ones on the NYSE by a 7.82-to-1 ratio; on Nasdaq, a 3.62-to-1 ratio favored decliners.

The S&P 500 posted 1 52-week high and 2 lows; the Nasdaq Composite recorded 23 highs and 122 lows.

(Reporting by Stephen Culp in New York
Additional reporting by Devik Jain, Ankika Biswas in Bengaluru and Sinead Carew in New York
Editing by Matthew Lewis)

((stephen.culp@thomsonreuters.com; 646-223-6076;))