Stock prices suffered their worst day in more than two years on Tuesday, with losses of more than 1,250 points for the Dow Jones Industrial Average after Wall Street recognized that inflation is not slowing as expected.
The S&P 500 fell 4.3%, its biggest decline since June 2020. The Dow lost 3.9% and the Nasdaq Composite closed with a loss of 5.2%. The crash ended a four-day rising streak in key indicators.
Bond prices also suffered a significant fall, pushing yields higher after a report showed inflation fell to just 8.3% in August, instead of the 8.1% forecast by economists.
Higher-than-expected inflation has forced stock traders to prepare for the Fed to raise its interest rate even further to combat inflation, with all the risks that entails for the economy. Fears of a higher interest rate sent prices falling across sectors, from gold and cryptocurrencies to crude oil.
“Right now, we’re less about the journey and more about the destination,” said Brian Jacobsen, investment strategist at Allspring Global Investments. “If the Fed wants to raise rates and hold them, the question is to what level.”
The S&P 500 lost 177.72 points to settle at 3,932.69. The crash failed to completely erase the gains made over the past four days. The indicator has recorded losses of 17.5% so far this year.
The Dow Jones fell 1,276.37 points to close at 31,104.97, while the Nasdaq fell 632.84 points to close at 11,633.57.
All but six S&P 500 stations fell. Technology and other high-growth companies fell more than the rest of the market because they are considered most vulnerable to rising interest rates.
Most of Wall Street began the day expecting the Fed to raise its short-term interest rate by three-quarters of a percentage point at its meeting next week. However, they expected inflation to return to normal after peaking at 9.1% last June.
The idea was that this slowdown would allow the Fed to reduce the size of its rate hikes this year and perhaps keep them stable through the first few months of 2023.
The yield on the 10-year Treasury note, which determines the trend in mortgage and other loan interest rates, rose to 3.42% from 3.36%
