- Dow falls 548 points amid inflation concerns, core CPI rises above expectations
- Investor hopes for a 50-basis-point rate cut diminish, 25-point cut likely
- Bank stocks like JPMorgan and healthcare giants drag markets lower
U.S. stocks took a sharp dive after new inflation data showed a higher-than-expected rise in core CPI, shaking investor confidence in the possibility of a larger Federal Reserve rate cut.
The Dow Jones Industrial Average dropped by 548 points, or 1.4%, while the S&P 500 fell by 1.1%, and the Nasdaq Composite declined by 0.7%. UnitedHealth Group, Travelers, and Amgen were among the worst performers in the Dow, while bank stocks, including JPMorgan Chase, continued to struggle.
Inflation Jitters Send Markets Reeling, Fed Rate Cut Expectations Adjusted
Investor hopes for a 50-basis-point rate cut have now all but evaporated, with the likelihood of a 25-basis-point reduction at the Federal Reserve‘s September 17-18 meeting increasing to 85%. Despite overall CPI reaching its lowest annualized level since February 2021, the core inflation reading rattled traders. Market strategists suggest that the seasonal headwinds in September are compounding the current uncertainty, as the month has historically been difficult for equities.
The inflation report dented hopes of a more significant Federal Reserve interest rate cut. Before the data was released, there had been growing speculation that the Fed might reduce rates by 50 basis points at its upcoming meeting. However, with core inflation rising more than expected, market predictions shifted toward a smaller, 25-basis-point cut, with an 85% probability, according to the CME Group’s FedWatch measure.
Despite these market reactions, overall inflation figures showed some positive trends. The total CPI reached its lowest annualized level since early 2021, providing some relief. Nevertheless, the core inflation data created a sense of unease among traders, overshadowing the broader CPI improvement. For many, this served as a reminder that the battle against inflation is far from over.
This downturn comes at a historically tough time for stocks. September has been the worst-performing month for the S&P 500 over the past decade, and the index has posted losses during this month for the last four consecutive years. As seasonal trends compound with inflation concerns, market volatility may persist in the weeks ahead.
With inflation concerns rising and hopes for a significant rate cut fading, markets are likely to experience continued volatility, especially as the Federal Reserve meeting approaches. Investors will need to adjust their expectations and brace for the possibility of more conservative monetary policy moves.
“I think it was a big splash of cold water on a market that was hopeful that a 50 basis-point rate cut might be in the cards.” — Steve Sosnick, Chief Strategist, Interactive Brokers
