O stock market American experienced one of its worst trading sessions this Tuesday, 13, since the great volatility caused by the pandemic in 2020. The main stock exchanges and indices ended the day down after data from inflation come higher than expected, frustrating expectations of loosening in the rise of feeswhich have been penalizing the capital market in recent months.
The indices S&P 500, Dow Jones e Nasdaq recorded their biggest drops since June 2020, ending the cycle of four consecutive days of highs. The S&P 500 closed down 4.32% at 3,932.69 points, accumulating a 17% drop for the year. The Dow Jones Industrial Average is down 3.94% to 31,104.97 points and the Nasdaq is down 5.16% to 11,633.57 points, leaving both with cumulative declines of 14% and 26%, respectively.
The drop is due to the frustration of market expectations with the inflation data. The consumer price index (CPI) rose 0.1% in August, bringing inflation to 8.3% in the twelve-month period. With inflation still quite high in the country, expectations are rising that the US central bank, the Federal Reserve (Fed), continue to raise interest rates more aggressively. The market now expects a 0.75 percentage point increase, the same magnitude as the previous meeting, making the possibility of a milder 0.50 percentage point tightening as desired by the stock market less likely.
According to the CME group’s FedWatch tool, the probability of an increase by half a percentage point dropped to zero, while 0.75 point increased to 72% and up to 1 point increased to 28%. “If that’s the case, a full-blown recession could be just around the corner, with rapidly rising borrowing costs taking any prospect of a ‘soft landing’ off the table,” conclude commentators for Seeking Alpha, the US financial market bulletin.
Today, stock exchanges recovered part of the losses after the release of producer price data (PPI), which indicate a slight deceleration of inflation, in line with market expectations. The PPI registered a 0.1% drop in August inflation, as estimated by economists. On an annual basis, which measures 12-month accumulated inflation, however, inflation rose to 8.7%. So, although the markets are recovering yesterday’s losses, the advance is still quite timid.
