US Stocks Decline Broadly as Inflation Stays High

15 Sep 2021 · 3rd Party Analysis

US Stocks Decline Broadly as Inflation Stays High


In Summary

  • US stocks retreat on Tuesday as rising investor concerns inflation could stay for longer
  • Stock index futures point to a slightly positive open on Wednesday

US Stocks Fall After August Inflation Arrives at 5.3%

Stocks in the US fell broadly on Tuesday after the consumer price index report showed inflation for August stayed high for yet another month.

The Dow Jones Industrial Average dropped more than 290 points, or nearly 0.9% after floating in the green earlier in the day. The S&P500 and the Nasdaq Composite slipped 0.57%, and 0.45%, respectively.

Stocks pulled back for a second straight day as consumer price inflation rose 0.3% in August, compared with a month ago. The inflation print was better than the projected rise of 0.4% on a monthly basis. Annualized inflation arrived at 5.3%, slightly lower than the July figure of 5.4%.

The fresh inflation data showed consumer prices rose at a more sustainable pace in August, following the 13-year high price growth in July. According to analysts, the cooldown in the pace of inflation is associated with the economic reopening after the harsh Covid-19 lockdowns across the states.

Core CPI Climbed 4% Over the Past 12 Months

The consumer price report, released yesterday, measures what US consumers pay for goods and services, including cars, food, leisure, and other items. The core consumer price index, on the other hand, tracks what consumers pay for goods and services, excluding the often-volatile categories of food and energy. Core CPI climbed 4% from a year before, lower than the 4.3% growth in July.

Among sectors, airline fare prices dropped 9.1% from July, while rental cars declined 8.5% for the same period. Gas prices picked up 2.8% from a month ago, and restaurant prices and grocery prices rose 0.4% each.

Despite the moderate decrease in the inflation rate, traders and investors offloaded risk in signs that the high valuations of stocks could be unjustified in a high-inflation environment.

Stock Index Futures Point to a Higher Open

On Wednesday, US futures advanced moderately. Futures contracts tied to the Dow Jones Industrial Average were higher by about 0.2% in pre-market trading. S&P500 futures and Nasdaq futures moved up by roughly 0.3% each.

Fed Meeting in Focus for Next Week

Investors now will be looking to the US Federal Reserve which is scheduled to meet next week. A two-day gathering between Fed officials on Tuesday and Wednesday is expected to provide updates about the US central bank’s next moves.

Traders and investors anticipate Fed policymakers to set a specific timeline for tapering or reducing, their asset purchases. The vast monetary policy, including purchasing bonds at a monthly pace of $120bn, will be scaled down by the end of the year, according to statements from Fed Chair Jerome Powell.

Some analysts think that the Fed Chairman might say after next week’s meeting the Fed had agreed to dial down the monthly monetary support. If that doesn’t happen, the central bank should announce the start of tapering in either its November meeting or after the last meeting for the year in December.

Other Markets Trade Mixed on Wednesday

European markets on Wednesday trade depressed after a largely uneventful trading day yesterday. Cryptocurrencies are aiming higher today with bitcoin steady above $47,000 per coin. The flagship token is currently in its third straight day of gains. Market sentiment has improved slightly since last week’s flash crash that erased about $400bn on Tuesday.

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