Stocks stumble after August inflation expectations

US stocks opened sharply lower on Tuesday after a surprising inflation report showed that prices rose more than expected last month.

Shortly after the opening bell, the S&P 500 was down more than 2%, the Dow was down 1.7%, and the tech-heavy Nasdaq was down 2.8%.

Bureau of Labor Statistics released the Consumer Price Index (CPI) For the month of August early Tuesday, which showed a price increase of 8.3% over the previous year and 0.1% compared to the previous month. Economists had expected an 8.1% increase in inflation from last year and a 0.1% decrease from the previous month.

This reading indicates some moderation in the price increases – which have reached its highest levels in four decades earlier this year But this smaller-than-expected drop is likely to lead to a 0.75% rate hike from the Federal Reserve at next week’s policy meeting.

On a “basic” basis, which excludes the more volatile costs of food and energy, prices were up 6.3% from a year ago in August and 0.3% from the previous month. Much of the steady rise in core inflation comes from the cost of shelter, which rose 0.7% from the previous month in August, the most since January 1991. Shelter costs make up about a third of the CPI.

Sima Shah, Senior Global Strategist at Sima Shah, said: “Headline inflation has peaked, but in a clear indication that the need to continue raising rates has not diminished, core CPI is back on the rise again, underscoring the very sticky nature of the inflation problem. in the United States”. Major global investors.

After Tuesday’s report, Data from the CME group showed Investors are pricing in an 82% chance of a 0.75% rate hike next week and an 18% chance of a 1% rate hike. Last week, this data reflected a 75%-25% split between 75 basis points and a 50 basis point rate hike.

US Federal Reserve Chairman Jerome Powell waits for his re-nominations to be heard before the Senate Banking, Housing, and Urban Affairs Committee on Capitol Hill, in Washington, US, Jan. 11, 2022. Brendan Smialofsky/Paul via Reuters

Elsewhere in the markets on Tuesday, Peloton (PTON) was in the spotlight following the announcement on Monday afternoon that Co-founder John Foley is stepping down from the board, months after Peloton appointed former Spotify CEO Barry McCarthy as CEO. Shares fell as much as 7% early Tuesday amid a broad sell-off in the markets.

Elsewhere, Rent the Runway shares (Leasing) up to 30% in early trading on Tuesday after the company Cut back on her guidance for the whole year She unveiled plans to cut 24% of the company’s workforce, citing “harsher overall conditions.”

Over the next few weeks, market action will be around the Fed and the macro environment, but second-quarter earnings season is fast approaching.

“Once we get past the CPI and PPI inflation reports this week and the Federal Open Market Committee meeting next week, the next major market catalyst will be third-quarter earnings,” DataTrek’s Nicholas Colas said in a note this week.

According to data from FactSet Research, earnings growth forecasts for the S&P 500 stand at a 3.7% increase for the third quarter, down sharply from the 9.8% growth forecast at the end of June.

Colas notes that analysts have lowered their third-quarter earnings forecast for the past 2-3 months for every segment of the S&P 500 except energy, and seven out of 11 groups are now expected to show a clear decline in earnings year-over-year, compared to just the segment. Three in the second quarter.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter Tweet embed

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