Inflation Surprise Hits Stocks Hard…..

U.S. equities plunged following the release of a disappointing inflation report. The Consumer Price Index unexpectedly rose in August, and moderated slightly year-over-year, but remained severely elevated. The moves came as investors continue to grapple with expectations of continued aggressive monetary policy, with today’s report likely solidifying the notion of a 75-basis point rate hike at this month’s FOMC meeting. In other economic news, small business optimism increased more than predicted. On the equity front, shares of Oracle declined as the company missed earnings estimates, overshadowing optimistic comments for future growth, while UBS’ shares rose after it announced it will up its quarterly dividend. Treasury yields were mixed, with the 2-year note seeing a marked gain, and the U.S. dollar soared following the CPI data, while crude oil and gold prices fell. European stocks were broadly lower following the data out of the U.S., as well as some inflation figures within the region, while Asian stocks finished mostly higher amid a host of mostly positive economic data.

The Dow Jones Industrial Average tumbled 1,276 points (3.9%) to 31,105, the S&P 500 Index fell 178 points (4.3%) to 3,933, and the Nasdaq Composite plunged 633 points (5.2%) to 11,634. In moderate volume, 4.2 billion shares of NYSE-listed stocks were traded, and 5.1 billion shares changed hands on the Nasdaq. WTI crude oil shed $0.47 to $87.31 per barrel. Elsewhere, the gold spot price declined $28.80 to $1,711.80 per ounce, and the Dollar Index rallied 1.4% to 109.88.

Consumer Price Index unexpectedly rose, small business optimism increased more than expected…..

The Consumer Price Index (CPI) unexpectedly rose 0.1% month-over-month (m/m) in August, compared to the Bloomberg consensus estimate calling for a 0.1% decline, and versus July’s unrevised flat reading. The core rate, which strips out food and energy, increased 0.6% m/m, double July’s unadjusted 0.3% rise where forecasts called for it to remain. Compared to last year, prices were 8.3% higher for the headline rate, above estimates calling for the rate to decline to an 8.1% increase from the prior month’s unrevised 8.5% rise. The core rate was up 6.3% y/y, above projections of a 6.1% gain, versus July’s 5.9% rise.

The Bureau of Labor Statistics (BLS) stated, “Increases in the shelter, food, and medical care indexes were the largest of many contributors to the broad-based monthly all items increase.” The BLS did note that some indexes declined, however, including those for airline fares, communication, and used cars and trucks.

The National Federation of Independent Business (NFIB) Small Business Optimism Index for August increased to 91.8 from July’s 89.9 level, and above the Bloomberg consensus estimate of a 90.8 reading. The index posted the eighth-consecutive month below the 48-year average of 98 but reversed some of the declines in the first half of the year. 29% of owners noted that inflation was their single most important problem in operating their business.

Treasury yields were mixed, as the yield on the 2-year note soared 19 basis points (bps) to 3.75%, and the yield on the 10-year note climbed 6 bps to 3.42%, while the 30-year bond rate ticked 1 bp lower to 3.50%.

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