Stocks fall sharply as hot inflation report points to more aggressive Fed, Nasdaq falls nearly 3%

Four experts react to August's central inflation report

Stocks fell sharply on Tuesday after a key August inflation report came in warmer than expected, hurting investor optimism for cooling prices and a less aggressive Federal Reserve.

The Dow Jones Industrial Average fell 550 points, or 1.7%. The S&P 500 fell 2.1 percent, and the Nasdaq Composite fell 2.8 percent.

More than 480 stocks in the S&P 500 fell, with Facebook parent Meta falling 5.5% and Caesars Entertainment losing 5.7%.

The consumer price index in August showed a higher than expected reading for inflation. Headline inflation rose 0.1% month-on-month, even with falling gas prices. Core inflation rose 0.6 per cent month on month. On an annual basis, inflation was 8.3 per cent.

Economists surveyed by Dow Jones had expected a 0.1% decline in headline inflation, with a 0.3% increase in core inflation.

The report is one of the last the Fed will see ahead of its meeting on 20-21. September, when the central bank is expected to deliver its third interest rate increase of 0.75 percentage points in a row to curb inflation. The unexpectedly high August report could see the Fed continue its aggressive hikes longer than some investors expected.

The moves come after four straight positive sessions for US stocks, boosted in part by many investors’ belief that inflation had already peaked.

“The CPI report was an unequivocal negative for equity markets. The warmer-than-expected report means we will see continued pressure from Fed policy via rate hikes,” said Matt Peron, director of research at Janus Henderson Investors. “It also pushes back any ‘Fed pivot’ that markets were hoping for in the near term. As we have warned in recent months, we are not out of the woods yet and will maintain a defensive stance with equity and sector allocations.”

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