Fear of Inflation Sends New York Stocks Plunging 4-5%... Dow Drops 1300 Points Intraday

[Image source=AP Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] The US inflation rate exceeded expectations, causing the New York stock market to plunge intraday on the 13th (local time). The intraday drop of the Dow Jones Industrial Average, composed of blue-chip stocks, exceeded 1,300 points.

At around 3:41 PM at the New York Stock Exchange (NYSE), the Dow was trading at 31,078.60, down 1,305.14 points (4.03%) from the previous close. The S&P 500, which focuses on large-cap stocks, was down 179.44 points (4.37%) at 3,930.97, and the tech-heavy Nasdaq was down 639.20 points (5.21%) at 11,628.70.

If it closes like this, the New York stock market will record its worst day since May. Economic media CNBC reported, "Most of the recent rally has been given back," adding, "It reminds us of mid-June when the S&P 500 fell below 3,700." Art Cashin of UBS expressed concern on CNBC, saying, "We could return to the June lows and face another test."

The three major New York stock indices, which showed an upward trend in pre-market trading, turned sharply downward after the release of the August Consumer Price Index (CPI) on this day.

According to the US Department of Labor, the August CPI rose 8.3% year-on-year, far exceeding the market expectation of 8.0%. It also rose 0.1% month-on-month, breaking the market's expectation of a decline. The core CPI, excluding food and energy, rose 6.3% year-on-year and 0.6% month-on-month, also surpassing market forecasts.

Mike Loewengart of Morgan Stanley Global Investment Research said, "Today's CPI firmly reminds us of the long journey ahead until inflation recovers," adding, "The hopeful expectation that we are on a downward trajectory may have been premature."

Despite falling oil prices, the confirmation of still-high inflation is strengthening the Federal Reserve's (Fed) consecutive three giant steps (0.75 percentage point interest rate hikes). Some even predict a 1 percentage point hike.

According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) rate futures market currently reflects a 66% chance of a 0.75 percentage point hike in September. This dropped from around 80% in the morning to 60%. Meanwhile, the probability of a 1 percentage point rate hike, which was 0% the previous day, surged to 18% in the morning and 34% in the afternoon. The unexpectedly high inflation data has raised expectations that the Fed's high-intensity tightening drive will intensify.

After the inflation data release, the 2-year Treasury yield, sensitive to monetary policy, immediately soared to around 3.78% in the New York bond market, marking the highest level since November 2007. The 10-year yield rose to around 3.44%.

Matt Perron, Research Director at Janus Henderson Investors, said, "The CPI report was clearly negative for the stock market," adding, "The higher-than-expected inflation confirmed that the Fed's pressure through rate hikes will continue."

This content was produced with the assistance of AI translation services.