Wall Street suffered its worst sell-off since the early days of the pandemic after official data showed a surprise rise in US inflation in August, sparking the specter the Federal Reserve will need. must take stronger action against rising prices.
The benchmark S&P 500 stock index fell 4.3%, its worst day since June 2020 with 99% of its companies sliding. The Nasdaq Composite fell 5.2% as tech groups deemed most affected by higher rates took the brunt of selling.
Yields on short-term government debt tracking interest rate expectations hit their highest in nearly 15 years, as investors raised bets that the Fed would have to do more to stem soaring inflation.
Shares in Asia followed Wall Street lower on Wednesday, with Hong Kong’s benchmark Hang Seng index down 2% and Japan’s Topix index down 1.7%. China’s CSI 300 index fell 1.3% while in Australia, the S&P/ASX 200 fell 2.7%.
Investors on Tuesday priced in a one-to-one chance that the U.S. central bank will raise interest rates by a full percentage point this month, according to data from CME Group, according to data from CME Group. instead of an increase of 0.75 percentage points is still the consensus expectation.
The inflation figures add to pressure on policymakers at the US central bank, who have promised to do everything in their power to spiral down prices. Their apparent determination to live up to their pledge has raised concerns that the economy is headed for a hard landing.
Tech stocks are particularly sensitive to changes in interest rate expectations because valuations are largely based on future growth prospects. Facebook owner Meta and chipmaker Nvidia were among the biggest losers, both down 9%, while Amazon fell 7%.
The drop cut Apple’s market valuation by $154 billion and Microsoft’s by $109 billion, with both companies recording their biggest daily losses since September 2020.
Tuesday’s frenzied selling affected nearly every corner of the US financial markets. At one point during the trading day, nearly 2,000 stocks traded on the New York Stock Exchange all dropped in price, a common phenomenon at times of market stress. Investors raced to hedge against further declines by contributing to equity put options contracts that could settle if the market continued to slide.
Sharp moves were sparked by official figures showing US consumer prices rose 0.1% in August from the previous month, versus expectations for a 0.1% drop. The annual rate stood at 8.3%, down from 8.5% in July, but higher than the 8.1% expected by Wall Street economists.
Most worryingly for Fed policymakers, core consumer price growth — which includes volatile commodities like energy and food — rose from 5.9% to 6.3%.
Matt Peron, director of research at Janus Henderson Investors, said the data “is a clear negative for the stock market”.
He added: “The hotter-than-expected report means we will continue to be under pressure. . . through interest rate hikes. It also pushes back any ‘Fed pivot’ the market hopes for in the near term. ”
In the Treasury market, the two-year yield, which closely tracks interest rate expectations, rose to its highest level since October 2007, ending the day up 0.18 percentage points at 3. .75 percent.
“The most impressive thing. . . Tom di Galoma at Seaport Global Holdings said in the Treasury market today is the move of two-year yields. “This number puts on the map clearly what the Fed will do [a 0.75 percentage point increase] and maybe more. “
Following the report, futures market investors bet that the Fed’s benchmark interest rate would be at 4.17% by year-end, compared with expectations of 3.86% prior to the report. That implies a 0.75 percentage point increase in September, plus another full percentage point gain throughout November and December.
The prospect of higher rates sent the dollar soaring, sending it up 1.4% against a basket of six currencies. The euro and pound fell, down 1.4% and 1.5%, respectively.
Euro zone bond sales shifted to euro zone bonds, with the German two-year package yield rising 0.08 percentage points to 1.37 percent and the 10-year yield increased 0.08 percentage points to 1.72 percent.
In Europe, the Stoxx 600 stock index in the region closed 1.5% lower, gaining 1.8% in the previous session. London’s FTSE 100 fell 1.2%.
Additional reporting by Hudson Lockett in Hong Kong
