Stock futures traded higher on Wednesday after another hot inflation reading sent the major averages to their worst day since June 2020 and dampened investors’ expectations of a less hawkish Federal Reserve.
Futures tied to the Dow Industrial Average were last up 126 points, or 0.4%, while S&P 500 futures ticked 0.5% higher and Nasdaq 100 futures rose 0.6%.
The Dow shed more than 1,200 points Tuesday, or nearly 4%, while the S&P 500 lost 4.3%. The Nasdaq Composite fell 5.2 percent.
The market moves came after August’s consumer price index report showed headline inflation rose 0.1% on a monthly basis despite a drop in gas prices.
The hot inflation report left questions about whether stocks could return to June lows or fall further. It also spurred some fears that the Federal Reserve could potentially hike even higher than the 75 basis points that markets are pricing in.
“It caught the market off guard,” said LPL Financial’s Quincy Krosby. “At the very least, the market had expected us to have flattened — maybe not moved lower, but certainly not climbed higher. It was the wrong direction, and of course the concern always translates into what this means for the Fed.”
All 30 Dow stocks and S&P 500 sectors ended the session lower, leading communications services to the downside. The sector fell 5.6% to end its worst day since February, dragged down by shares of big tech names such as Netflix and Meta Platforms, which fell 7.8% and 9.4% respectively.
A reading of the producer price index is due to be published on Wednesday morning and could provide further clues about the state of inflation ahead of the Fed’s rate hike meeting next week.