U.S. stocks slid on Wednesday following the release of the latest inflation data, which indicated a slight drop in consumer prices for August.
Investors also closely analyzed the first presidential debate between Donald Trump and Kamala Harris, which left key economic questions unanswered.
The S&P 500 (^GSPC) dropped by 1.2%, while the Nasdaq Composite (^IXIC) shed 0.8%.
The Dow Jones Industrial Average (^DJI) took the largest hit, falling 1.5%, translating to a loss of more than 600 points, and extending a two-day losing streak.
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Inflation Data: Core CPI Surprises
Investors were paying close attention to August’s Consumer Price Index (CPI) report, hoping it would clarify the Federal Reserve’s next move regarding interest rates.
The headline CPI showed inflation easing to its lowest point in over three years, indicating that price increases have decelerated.
However, the core CPI—which excludes volatile food and energy prices—rose by 0.3% from the previous month, surpassing the 0.2% increase forecast by economists.
This unexpected rise in core prices has led to speculation that the Federal Reserve might adopt a more cautious approach when adjusting interest rates next week.
Fed Rate Cut Expectations Shift
Before the CPI data release, traders were divided over whether the Fed would opt for a 0.5% or 0.25% interest rate cut, which would mark the first cut in years.
Now, with core inflation coming in higher than expected, the odds of a 50 basis point rate reduction have dropped significantly, from 44% last week to just 15% according to the CME FedWatch Tool.
The market now favors a smaller 0.25% cut, as the Fed aims to balance controlling inflation while providing some stimulus amid economic uncertainty.
With the Federal Open Market Committee meeting next week, traders are eagerly awaiting confirmation of the Fed’s decision.
Presidential Debate Adds Uncertainty
Adding to market volatility was Tuesday’s much-anticipated presidential debate between Donald Trump and Kamala Harris.
Investors were hoping for more clarity on the candidates’ positions on key economic policies, such as tariffs, taxes, and regulation.
However, the debate was generally light on detailed discussions that could significantly impact markets.
Despite the lack of economic substance, Harris’ performance seemed to boost market speculation of a Democratic win in the upcoming election.
Crypto-linked stocks dipped in response, as many investors see Trump’s pro-crypto stance as more favorable for the industry. Bitcoin (BTC-USD) also saw a slight decline, reflecting the growing bets on a potential Harris presidency.
GameStop’s Struggles Continue
Elsewhere in the market, GameStop (GME) took a major hit, with shares plummeting more than 16% after the video game retailer missed its quarterly revenue targets.
The company also announced plans to issue 20 million new shares, further adding to investor concerns about its future financial performance.
GameStop has faced increasing pressure from changing consumer habits and the ongoing shift toward digital gaming.
Conclusion: Fed’s Next Move in Focus
As markets digest the latest inflation report and assess the first presidential debate, all eyes are on the Federal Reserve ahead of its meeting next week.
With the odds shifting in favor of a smaller rate cut, traders are bracing for continued market volatility.
The coming days will be critical as the Fed’s decision will likely have a significant impact on the direction of U.S. stocks and the broader economy.
Investors will also remain attuned to further political developments, particularly regarding the candidates’ economic policies, as the 2024 election looms closer.