Dow futures down some 500 points as CPI data reflect persistence of inflation


U.S. stocks opened sharply lower Tuesday after an unexpected monthly rise in the August consumer-price index dashed hopes for a further slowdown in inflation and reinforced expectations Federal Reserve policy makers will continue to aggressively tighten monetary policy.

What’s happening
  • The Dow Jones Industrial Average DJIA, -2.30% dropped 626 points, or 1.9%, to 31,755.
  • The S&P 500 SPX, -2.63% was down 96 points, or 2.3%, at 4,015.
  • The Nasdaq Composite COMP, -3.26% tumbled 380 points, or 3.1%, to 11,886.

On Monday, the Dow rose 230 points, or 0.7%, the S&P 500 increased 1.1% and the Nasdaq Composite gained 1.3%. The S&P 500 had climbed 5.2% over the last four trading days through Monday.

What’s driving markets

The August consumer-price index, or CPI, rose 0.1% in August, though the year-over-year rate slowed to 8.3% from 8.5% in July. Economists had looked for a monthly fall of 0.1% that would bring the year-over-year rate down to 8%. However, the core rate, which strips out volatile food and energy prices, rose 0.6%, for a year-over-year rise of 6.3%, outstripping expectations for a 0.3% monthly rise and a 6% year-over-year pace.

“Stubborn inflation pressures are likely to force the Fed to turn up the heat on its tightening campaign, which puts the broader economy at further risk of a material downturn/recession within the next year,” said Jason Pride, chief investment officer of private wealth at Glenmede, in emailed comments.

“In recognition of these uncertainties, investors should maintain an underweight risk posture, particularly given the premium valuations still prevalent in equity markets,” he wrote.

The data is seen cementing expectations the Federal Reserve will boost the fed-funds rate by another outsize 75 basis points when it meets next week, with fed-funds futures penciling in the outside prospect of a 100 basis point hike. Treasury yields jumped, with the rate on the policy-sensitive 2-year note TMUBMUSD02Y, 3.741% surging more 16 basis points to trade at 3.72%, near a 15-year high, and further inverting the yield curve — a phenomenon seen as a reliable recession indicator.

“Overall, inflation readings remain unacceptably high for policy makers. Coupled with a labor market that is still strong, the data seal the deal for another aggressive, 75-basis point, rate hike next week,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics, in a note.

Companies in focus
  • Oracle Corp. ORCL, +0.71% late Monday reported lower earnings than expected late Monday and executives’ profit forecast also came in lower than analysts were projecting, as a strengthening dollar took its toll. Oracle shares rose 0.9%.
  • Peloton Interactive Inc. PTON, -8.60% said late Monday that it has accepted the resignations of co-founders John Foley and Hisao Kushi, the latest leadership shake-up to hit the troubled interactive fitness company. Shares fell 9%.
  • Online clothing-rental platform Rent the Runway Inc. RENT, -30.22% on Monday announced plans to slash corporate staff after summer-season demand wobbled. Shares fell 28%.

—Steve Goldstein contributed to this article.

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