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U.S. stocks opened sharply lower Thursday, after the consumer-price index for September came in hotter than economists had expected, reinforcing expectations the Federal Reserve will continue aggressively tightening interest rates in its struggle to bring down inflation.
What’s happening
-
The Dow Jones Industrial Average
DJIA,
-0.60%
was down 478 points, or 1.6%, at 28,728 -
The S&P 500
SPX,
-0.99%
fell 79 points, or 2.2%, to 3,498. - The Nasdaq Composite slumped 317 points, or 3%, to 10,100.
The S&P 500 and Nasdaq were on track to extend losing streaks to seven days. The S&P 500 has dropped 25% this year as investors reacted to interest rate rises from the Federal Reserve.
What’s driving markets
One of the most closely watched economic data releases of the month, the year-over-year headline number for the September consumer-price index came in at 8.2%, down from 8.3%, but higher than the FactSet consensus estimate of 8.1%.
But it was the rise in the core CPI number, which strips out volatile food and energy prices, that got the blame for the selloff, posting a monthly rise of 0.6% versus a Wall Street forecast of 0.4%. The increase in the core rate over the past year climbed to a new peak of 6.6% from 6.3%, marking the biggest gain in 40 years.
“The market’s steep drop following the data may indicate any lingering hopes of a Fed hike slowdown have been crushed,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office.
See: Consumer prices jump again in September and CPI shows little letup in high inflation
The data sent Treasury yields
TMUBMUSD10Y,
surging, with the yield on the 10-year note rising more than 15 basis points toward 4.06%.
Meanwhile, traders of Fed funds futures were pricing in 96.8% odds of a 75 basis point hike at the Fed’s November meeting, up from 83% earlier Thursday before the data were released.
In addition to expectations for another jumbo interest rate hike in September, investors are also placing strong odds of another 75 basis-point rate hike in December, with odds in the Fed funds futures market rising to more than 60%. Assuming the Fed follows through with both, they would be the fourth and fifth 75 basis-point rate hikes of the year, respectively.
“Not only is the Federal Reserve going to raise rates by 75 bps next month, but there is now a possibility that they will raise rates by another 75 bps in December,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, in emailed comments.
The September report is the seventh out of nine CPI readings this year to have topped expectations, according to Michael Brown, senior market analyst at Caxton. Hot CPI readings have been responsible for some of the biggest down days for the S&P 500 so far in 2022.
The U.S. dollar also strengthened after the report, with the ICE U.S. Dollar Index
DXY,
gaining 0.2% to 113.58.
Investors also received a report on weekly jobless claims, which showed that the number of Americans filing for unemployment benefits has now increased during three of the last four weeks, although some of the rise was attributed to the impact of Hurricane Ian in Florida.
