US stocks tumbled on Wednesday as investors digested an inflation report that showed consumer price increases ticked lower during August and analyzed the first presidential debate between Donald Trump and Kamala Harris.
The benchmark S&P 500 (^GSPC) fell more than 1.2%, while the tech-heavy Nasdaq Composite (^IXIC) was off about 0.8%. The Dow Jones Industrial Average (^DJI) dropped about 1.5%, or more than 600 points, extending losses from the prior trading session.
Investors had been looking to August’s consumer price index to lift the uncertainty around the size of the Federal Reserve’s first interest-rate cut in years. The data showed headline inflation slipping to a more than three-year low. But “core” prices, which strip out the more volatile costs of food and gas, climbed 0.3% over the prior month, above the 0.2% economists had expected.
After a mixed monthly jobs report, the price data was expected to help settle the debate over whether to expect a 0.5% or 0.25% easing in the Fed’s policy decision next week. And after the hotter-than-expected month-over-month increase for core inflation, traders are now favoring a smaller cut from the Fed at its meeting next week.
The odds of the Fed lowering rates by 50 basis points now sit at just 15%, down from the 44% chance seen a week prior, per the CME FedWatch Tool.
Read more: Fed predictions for 2024: What experts say about the possibility of a rate cut
Meanwhile, investors were assessing Tuesday night’s Trump-Harris presidential debate for insight into the nominees’ plans for the economy. Their exchanges were seen as light on detail on issues that could sway markets, such as tariffs, taxes, and regulation.
Crypto-linked stocks fell in early trading as bets on a Harris election win for the Democrats climbed following the debate. Leading token bitcoin (BTC-USD) also dipped in light of her Republican rival’s pro-crypto stance.
Elsewhere, GameStop (GME) shares sank more than 16%% after the video games retailer posted a quarterly revenue miss and revealed it plans to issue 20 million new shares.
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Citi moves September Fed call to 25 basis points from 50
One Wall Street firm which had been clamoring for a 50 basis point interest rate cut from the Federal Reserve as economic data slows, no longer thinks that will be the result of next week’s policy decision.
On Wednesday, the August Consumer Price Index (CPI) report showed “core” prices, which strip out the more volatile costs of food and gas, climbed 0.3% over the prior month, above the 0.2% economists had expected.
Citi chief US economist Andrew Hollenhorst wrote in a note to clients that signs of sticking housing inflation pushing core inflation higher than expected is “probably just enough to convince the FOMC to cut 25 [basis points] rather than 50 [basis points] at next week’s meeting.”
Still, Hollenhorst argued that “overall trajectory for core PCE inflation (or Fed policy) is not substantially changed by this reading.” Citi still sees the Fed cutting rates by 125 basis points this year as cooling in the labor market will remain a key concern for the central bank.
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Interest sensitive areas of the market lead stocks lower
Stocks were firmly in the red on Wednesday morning.
The benchmark S&P 500 (^GSPC) fell more than 1%, while the tech-heavy Nasdaq Composite (^IXIC) was off about 0.8%. The Dow Jones Industrial Average (^DJI) dropped about 1.5%, or more than 600 points, extending losses from the prior trading session.
Interest rate sensitive areas of the market were among the day’s biggest losers as investors trimmed their bets on the Federal Reserve opting for a larger interest rate cut at its September meeting.
Financials (XLF) were off more than 2% while Real Estate (XLRE) slid more than 1.7%.
Source: Yahoo Finance -
Stocks open mixed
US stocks wavered on Wednesday as investors digested an inflation report that showed consumer price increases ticked lower during August and analyzed the first presidential debate between Donald Trump and Kamala Harris.
The benchmark S&P 500 (^GSPC) fell about 0.1% while the The tech-heavy Nasdaq Composite (^IXIC) climbed about 0.3%. The Dow Jones Industrial Average (^DJI) dropped about 0.6% or roughly 250 points, extending losses from the prior trading session.
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Bets on a 50 basis point cut from the Fed are fading
The immediate read through from Wednesday morning’s fresh reading on inflation appears to be that it won’t be enough to push the Federal Reserve to cut interest rates by 50 basis points at its meeting next week.
Data from the Consumer Price Index in August showed headline inflation slipping to a more than three-year low. But “core” prices, which strip out the more volatile costs of food and gas, climbed 0.3% over the prior month, above the 0.2% economists had expected.
After a mixed monthly jobs report, the price data was expected to help settle the debate over whether to expect a 0.5% or 0.25% easing in the Fed’s policy decision next week. And after a hotter-than-expected month-over-month increase for core inflation, traders are now favoring a smaller cut from the Fed at its meeting next week.
“The unexpectedly strong rise in core inflation in August reflected upward surprises in shelter and transport services, which we do not think will be sustained,” Oxford Economics deputy chief US economist Michael Pearce wrote in a note to clients. “Even so, the unwelcome news on inflation will distract slightly from the Fed’s renewed focus on the labor market and makes it more likely that officials stick with a more measured approach to easing, beginning with a 25bp cut next week.”
Following Wednesday’s CPI reading, the odds of the Fed lowering rates by 50 basis points were just 15%, down from the 44% chance seen a week prior, per the CME FedWatch Tool.
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Inflation: Consumer price increases ticked lower in August as investors eye September rate cut
A closely-watched report on US inflation showed consumer price increases ticked lower during the month of August on an annual basis, according to the latest data from the Bureau of Labor Statistics released Wednesday morning.
The Consumer Price Index (CPI) increased 2.5% over the prior year in August, which was a deceleration compared to July’s 2.9% annual gain in prices. The yearly increase was also in-line with economist expectations.
The index rose 0.2% over the previous month, matching both July’s monthly increase and what economists had expected.
On a “core” basis, which strips out the more volatile costs of food and gas, prices in August climbed 0.3% over the prior month and 3.2% over last year. Core prices rose 0.2% month over month and 3.2% on an annual basis in July.
