US stocks fell sharply on Tuesday after a surprise inflation report pushed prices higher than expected last month.
Shortly after the opening bell, the S&P 500 was down more than 2.1%, the Dow was down 1.8%, while the tech-heavy Nasdaq was down 3.2%.
Bureau of Labor Statistics Consumer Price Index (CPI) released For the early Tuesday of August, that showed the price increased by 8.3% over the previous year and 0.1% over the previous month. Economists had expected inflation to rise by 8.1% over the previous year and decline by 0.1% over the previous month.
This reading marks some moderation in the price increase – which reached Four-decade high earlier this year – But this small drop is likely to prompt the Federal Reserve to hike the rate to 0.75% at its policy meeting next week.
On a “core” basis, which does not include the more volatile costs of food and energy, prices rose 6.3% in August over the prior year and 0.3% over the previous month. The steady rise in core inflation comes from the cost of shelter, which rose 0.7% in August over the previous month, the highest since January 1991. Shelter costs comprise about a third of the CPI.
Chief global strategist Seema Shah said, “Headline inflation is peaking, but in a clear indication that the need to continue raising rates has not eased, the core CPI is rising once again, which is at the heart of the US inflation problem.” Confirms the sticky nature.” Leading Global Investor.
After Tuesday’s report, Data from the CME group are shown. Investors pricing in an 82% probability of a 0.75% rate increase next week and an 18% probability of a 1% rate increase. Last week, this data shows a 75%-25% split between 75 basis point and 50 basis point rate hikes.
Moves were also sharp along the Treasury curve on Tuesday, with the 10-year yield rising to 3.44%, while the 2-year yield rose 15 basis points to 3.72%.
Elsewhere in the markets on Tuesday, Peloton (PTON) was in the news on Monday afternoon after an announcement that Co-founder John Foley is stepping down From the board of directors, months later Peloton appointed former Spotify executive Barry McCarthy as CEO. Shares were down 7% early Tuesday amid widespread selling in the markets.
Elsewhere, Rent the Runway shares (rent) fell up to 30% in early trading on Tuesday after the company trimmed its full year guidance and unveiled plans to cut 24% of its corporate workforce, citing “potentially difficult macro conditions”.
Over the next few weeks, market action will be about the Fed and the macro environment, but Q2 earnings season is quickly approaching.
“Once we get past this week’s CPI and PPI inflation report and next week’s FOMC meeting, the next major market catalyst will be third quarter earnings,” Datatrack’s Nicolas Kolas said in a note this week.
According to data from FactSet Research, the S&P 500 earnings growth expectations for the third quarter are at 3.7% growth, sharply below expectations for 9.8% growth at the end of June.
Kolas points out that analysts have cut their third-quarter earnings expectations over the past 2-3 months for every sector in the S&P 500 except energy, and that seven of the 11 groups are now reporting year-over-year earnings growth compared to only now. The year is expected to show a decline. Three in the second quarter.
Alexandra Semenova is a reporter for Yahoo Finance. follow him on twitter @alexandraandnyc