After the release of CPI data, the US stocks ended in a broad selling trend that even dragged Wall Street down as well. The inflation report was so bad that it killed any hope that the Feds would slow down their policy tightening. Now it seems that the Fed will continue its hawkish stance for months to come.
After the CPI data release, the top 3 stock indices from the USA broke their winning streak of 4 days. In fact, all of these indices ended up recording their biggest percentage drops in one day since 2020! The last time we saw a drop like this, it was due to the COVID-19 pandemic.
The latest CPI report has turned the investors' sentiment negative and sent a wave of risk-off in the markets. As a result, the tech stocks such as Apple, Microsoft, and Amazon were among the heaviest losers - These stocks are usually sensitive to any increase in the interest rate!
Considering how the markets were rallying before the release, it was only natural to experience this sell-off. These were the views of a famous Portfolio manager from Chicago.
The CPI data was released by the Labor Department and highlighted that inflation is still running hot. Earlier, the general view was that inflation is now on a cooling trend and will drop slowly. But in reality, the opposite of that happened.
Core CPI, which doesn't include the energy and food prices, also saw a rapid increase - Earlier, it was only around 5.9% but increased to 6.3% in July.
From the reading, it has become apparent that inflation is now a persistent problem which means the Fed engagement for a long time to come. For the equities, that's bad news no matter how you look at it!
Within the last 6 months, around a 3% point increase was made in the interest rates. Experts believe that the exact impact of these rate hikes is yet to come!