The stock market fell the most since June 2020 following Wall Street’s humbling realization Tuesday that inflation is not slowing as much as hoped. The S&P 500 fell 177.72 points, or 4.3%, to 3,932.69. The Dow Jones Industrial Average fell 1,276.37 points, or 3.9%, to 31,104.97. The Nasdaq fell 632.84 points, or 5.2%, to 11,633,57. A hotter-than-expected report on inflation has traders bracing for the Federal Reserve to ultimately raise interest rates even higher than expected, with all the risks for the economy that entails. Bond prices also tumbled, sending yields sharply higher, after the government reported inflation decelerated last month by less than economists forecast.
Investments seen as the most expensive or the riskiest are the ones hardest hit by higher rates. Bitcoin tumbled 7.1%. In the stock market, all but four of the stocks in the S&P 500 fell. Technology and other high-growth companies fell more than the rest of the market because they're seen as most at risk from higher rates, the AP reports. Apple, Microsoft, and Amazon all fell more than 4% and were the heaviest weights on the market. The communication services sector, which includes Google's parent company and other internet and media companies, sank 4.8% for the largest loss out of the 11 sectors that make up the S&P 500 index.
Most of Wall Street came into the day thinking the Fed would hike its key short-term rate by a hefty three-quarters of a percentage point at its meeting next week. But the hope was that inflation was in the midst of quickly falling back to more normal levels after peaking in June at 9.1%. The thinking was that such a slowdown would let the Fed downshift the size of its rate hikes through the end of this year and then potentially hold steady through early 2023. Tuesday’s report dashed some of those hopes. "Right now, it’s not the journey that's a worry so much as the destination," says Brian Jacobsen at Allspring Global Investments. "If the Fed wants to hike and hold, the big question is at what level." (Read more stock market stories.)