US stock indices fell sharply on Tuesday, snapping a four-day gaining streak, after data showed monthly US consumer prices rose unexpectedly in August, bolstering bets the Federal Reserve will hike by third consecutive time interest rates 75 basis points.
* All 11 S&P sectors fell in early trading, led by a 3.3% drop in the communication services sector. The small-cap Russell 2000 index fell 2.5%.
* The S&P 500 growth stock index, which houses interest-rate-sensitive growth and technology stocks, fell 3% as Treasury yields rose.
* Large-cap tech stocks Apple Inc and Microsoft Corp fell more than 2.3% each, while Tesla Inc, Alphabet Inc, Amazon.com Inc and Meta Platforms Inc fell between 2.7% and 5. 6%, and were the heaviest drags on the S&P 500 and the Nasdaq.
* The Labor Department’s consumer price index (CPI) showed that the monthly CPI rose 0.1% in August from July, versus expectations for a 0.1% decline. In year-on-year terms, it rose 8.3%, more than the 8.1% expected by economists, according to a poll.
* Excluding volatile food and energy components, the core CPI rose to 6.3% from 5.9% in July, putting further pressure on the Federal Reserve to continue its pace of rate hikes .
* “The long-term view is pretty clear: Monetary policy is a very blunt instrument, and anyone who thinks that inflation will start to come down just because the Federal Reserve has raised rates a couple of times is pretty ignorant of how monetary policy works.” the economy,” said Doug Fincher, portfolio manager at Ionic Capital Management.
* Last week, policy makers reiterated their determination to keep raising rates until inflation, which is at a 40-year high and above the 2% target set by the Federal Reserve, subsides.
* Money markets now see an 81% chance of a 75 basis point rate hike and a 19% chance of a 100 basis point hike at the Fed’s September 20-21 meeting, plus expect rates to reach a maximum around 4.28% in March 2023.
* The Dow Jones Industrial Average fell 872.79 points, or 2.70%, to 31,508.55 points, the S&P 500 lost 127.20 points, or 3.09%, to 3,983.21, and the Nasdaq Composite fell 482 .53 points, 3.93%, to 11,784.28 units.