The Dow Jones industrial average closed down 1,276 points and the broader S&P 500 lost nearly 177 points – down about 4 percent each – after new data showed official U.S. inflation remained stubbornly high, up 8.3 percent in year until August. Tuesday’s sell-off was the worst day for the S&P 500 since the early days of the pandemic in March 2020. The tech-focused Nasdaq fared even worse, down more than 600 points, or more than 5%. The U.S. central bank, the Federal Reserve, has already raised interest rates four times this year in an aggressive campaign to beat inflation, but data for August showed those moves were not enough and more will be needed. Higher interest rates are generally seen as bad news for the stock market because they raise borrowing costs and also tend to slow consumer spending, which hurts corporate profits. “The Fed cannot let inflation persist. You have to do whatever is necessary to stop prices from going up,” said Russell Evans, chief executive of Avitas Wealth Management. “This shows that the Fed still has a lot of work to do to reduce inflation.” The inflation data was so much worse than expected that traders now see a one-in-five chance of a full percentage point rate hike by the Fed next week. That would be four times the usual move, and no one in the futures market predicted such an increase a day earlier. Barry Schwartz, chief investment officer at Baskin Wealth Management in Toronto, said investors should be prepared for choppy days until there are clear signs that inflation is heading down. “I think everybody should be resigned to the fact that it’s going to be a difficult development until there’s a clear indication that interest rates have peaked,” he told CBC News.
Loonie, TSX fall
The Toronto stock market fared comparatively better than its New York-based counterparts, but the main Canadian stock index was also lower as commodities such as oil and gold crashed into the dark. The TSX closed up 358 points or 1.8 percent. The loonie lost more than a cent to change hands below 76 US cents as investors fled to the perceived safety of the US dollar. “Many of the market participants arrived at this number really believing that inflation is coming down and now they need to unwind those big trades,” Schwartz said. “It could be some rough, choppy waters for the rest of September.”
