[New York Stock Market] 'Worst Day' Due to Inflation Shock... Nasdaq Plummets 5.16%

[Image source=AP Yonhap News]

[Asia Economy New York=Special Correspondent Joesulgina] The U.S. stock market plunged across the board on the 13th (local time) as U.S. inflation showed a higher-than-expected level. This was a result of shattered market expectations around the so-called inflation peak theory, rapidly spreading fears of the Federal Reserve's (Fed) aggressive tightening. Some even raised the prospect of a 1 percentage point interest rate hike.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 31,104.97, down 1,276.37 points (3.94%) from the previous session. The large-cap focused S&P 500 index fell 177.72 points (4.32%) to 3,932.69, and the tech-heavy Nasdaq index dropped 632.84 points (5.16%) to 11,633.57. The small-cap Russell 2000 index recorded 1,831.57, down 74.51 points (-3.91%).

The Dow's drop exceeded 1,200 points, marking its worst day since June 2020. Economic media CNBC reported, "Most of the recent rally has been given back," adding, "It recalls mid-June when the S&P 500 fell below 3,700."

Among individual stocks, high-growth tech stocks were particularly hit hard. Meta Platforms, the parent company of Facebook, closed down 9.37% from the previous session. Semiconductor stocks also saw significant declines: Nvidia (-9.47%), AMD (-8.99%), Intel (-7.19%). Apple (-5.87%), Tesla (-4.04%), Microsoft (-5.50%), and Amazon (-7.06%) all fell sharply. Cloudflare dropped more than 10%, and Unity Software plummeted over 13%.

Retail stocks also weakened as high inflation was confirmed. Target slid 4.38%, Home Depot fell 6.59%. Carvana, the largest used car seller in the U.S., saw its stock drop nearly 13%. Airline stocks such as United Airlines (-3.65%), American Airlines (-5.46%), and Delta Air Lines (-4.25%) also underperformed. Meanwhile, Twitter rose 0.80% after news spread that Tesla CEO Elon Musk's sale proposal was approved at the shareholder meeting held that day.

This sharp sell-off was a consequence of confirming that U.S. inflation is more severe than expected. The three major New York stock indices, which had been rising in pre-market trading, turned sharply downward after the release of the August Consumer Price Index (CPI).

According to the U.S. Department of Labor, the August CPI rose 8.3% year-over-year, slowing from June's 9.1% and July's 8.5%, but exceeding market expectations of 8.0%. Notably, the core CPI, which excludes volatile energy and food prices, increased 6.3% year-over-year. The faster-than-expected rise in core CPI compared to the previous month and forecasts raised concerns that inflationary pressures could persist longer. 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, confirmed high inflation is strengthening the case for the Fed's third consecutive giant step (0.75 percentage point rate hike). Some are even forecasting a 1 percentage point hike.

According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds (FF) rate futures market currently reflects a 68% chance of a 0.75 percentage point hike in September, just after the New York market close. This is down from 80% earlier in the morning to around 60%. Meanwhile, the probability of a 1 percentage point hike surged from 0% the previous day and 18% in the morning to 32% currently. The unexpectedly high inflation data has fueled speculation that the Fed's aggressive tightening drive will intensify.

Nomura economists suggested the possibility of a 1 percentage point hike in September, followed by 0.5 percentage point hikes in November and December. Diane Swonk, chief economist at KPMG, described the CPI report as "nightmarish," putting a 1 percentage point hike on the table.

Rubella Faruqi, chief economist at High Frequency Economics, said, "The inflation figures are at a level that policymakers cannot tolerate," adding, "Along with a strong labor market, this data makes another aggressive 0.75 percentage point rate hike at next week's meeting a foregone conclusion." On the other hand, Evercore ISI drew a line in its report that day, saying the chance of a 1 percentage point hike is "almost none."

Following the inflation data release, the yield on the 2-year U.S. Treasury note, sensitive to monetary policy, immediately surged to around 3.78%, hitting its highest level since November 2007. The 10-year yield rose to about 3.44%. The inversion, where short-term yields exceed long-term yields, deepened further, typically seen as a recession signal. Concerns that rapid rate hikes could eventually trigger a U.S. recession were also reflected in the bond market.

The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's "fear gauge," jumped more than 14% from the previous session, hovering around 27. The dollar, a representative safe-haven asset, strengthened amid fears of the Fed's aggressive tightening. The dollar index, which measures the dollar's value against six major currencies, rose more than 1% to approach 110.

Conversely, oil prices fell due to the strong dollar trend. On the New York Mercantile Exchange, October West Texas Intermediate (WTI) crude oil closed at $87.31 per barrel, down 47 cents (0.54%) from the previous session, marking a decline after four consecutive days of gains.

Meanwhile, ahead of the November midterm elections, with U.S. inflation data exceeding expectations, President Joe Biden reiterated the importance of his major legislative achievement, the Inflation Reduction Act (IRA). After the CPI release, President Biden said, "It will take more time to solve the inflation problem," adding, "This is why we passed the Inflation Reduction Act, which can lower healthcare, prescription drug, and energy costs." Seemingly concerned that inflation could hurt the Democrats and himself in the midterms, he emphasized, "My economic plan shows that we can lower prices while creating quality jobs and revitalizing manufacturing."

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