US stock markets plummet as inflation report suggests more rate hikes to follow | TBEN News


US stock markets plunged into the red on Tuesday after new data showed that inflation is proving stubbornly resilient and will need much higher interest rates to keep it under control.

The Dow Jones Industrial Average closed 1,276 points lower and the broader S&P 500 lost nearly 177 points — down about four percent each — after new data showed official U.S. inflation remains stubbornly high, up 8.3 percent in the year. until August.

Tuesday’s sell-off was the worst day for the S&P 500 since the early days of the pandemic in March 2020. The tech-focused Nasdaq fared even worse, dropping more than 600 points, or more than five percent.

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The US central bank, the Federal Reserve, has already raised interest rates four times this year in an aggressive campaign to stay ahead of inflation, but data for August suggests those steps were not enough and that even more will be needed.

Higher interest rates are generally seen as bad news for the stock market, as they increase the cost of borrowing and also slow consumer spending, holding back corporate earnings.

“The Fed can’t let inflation continue. You have to do what it takes to keep prices from rising,” said Russell Evans, director of Avitas Wealth Management. “This indicates that the Fed still has a lot of work to do to drive down inflation.”

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Inflation data was so much worse than expected that traders now see a one in five chance of a full percentage point hike by the Fed next week. That would be a quadrupling of the usual move, and no one in the futures market had predicted such a rise a day earlier.

Barry Schwartz, chief investment officer of Baskin Wealth Management in Toronto, said investors should be prepared for volatile days ahead until there are clear signs that inflation is going down.

“I think everyone has to come to terms with the fact that it’s going to be a tough time until there’s a clear indication that interest rates have peaked,” he told TBEN News.

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Lonie, TSX fall

The Toronto Stock Exchange outperformed its New York-based counterparts, but the main Canadian stock index was also lower as commodities such as oil and gold were crushed in the gloom. The TSX closed its own 358 points or 1.8 percent. The madman lost more than a cent to change hands below US 76 cents as investors fled to the perceived safety of the US dollar.

“A lot of market participants went to this number and really thought inflation was cooling off and now they need to settle those big trades,” Schwartz said. “It can be some rough, choppy water for the rest of September.”