# Stocks tumble, dollar rallies as soaring U.S. inflation implies an aggressive Fed
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-09-14
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Dollar index rallies and S&P 500 tumbles 4% on inflation
Meta Description: Discover the latest market movements post-U.S. close. Dollar index rises, S&P 500 plunges 4% amid faster-than-expected consumer price growth triggering Fed
URL: https://financedigest.com/stocks-tumble-dollar-rallies-as-soaring-u-s-inflation-implies-an-aggressive-fedhtml

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(Updates after U.S. close, adds commentary)

By Sinéad Carew

NEW YORK (Reuters) – The [dollar index rallied on Tuesday and the S&P 500 tumbled](https://www.financedigest.com/yen-sinks-as-rates-outlook-diverges-nz-dollar-tumbles.html "Yen sinks as rates outlook diverges; NZ dollar tumbles") 4% while Treasury yields surged after data showed U.S. consumer prices rising faster than expected in August, prompting [bets for more aggressive Federal Reserve rate hikes](https://www.financedigest.com/dollar-hits-one-month-high-against-yen-as-traders-bet-on-fed-rate-hike.html "Dollar hits one-month high against yen as traders bet on Fed rate hike").

Oil futures also lost ground after the Labor Department [data on Tuesday showed that declining gasoline prices in August were offset by gains](https://www.financedigest.com/dollar-trims-gains-vs-euro-after-u-s-inflation-data.html "Dollar trims gains vs euro after U.S. inflation data") in rent and food costs. The Consumer [Price Index gained](https://www.financedigest.com/oil-prices-stable-heading-for-weekly-gain.html "Oil prices stable, heading for weekly gain") 0.1% last month versus expectations for a 0.1% decline and after being unchanged in July.

[Wall Street’s](https://www.financedigest.com/wall-street-stocks-power-higher-as-treasury-yields-and-dollar-ease.html "Wall Street stocks power higher as Treasury yields and dollar ease") equity indexes saw their deepest one-day percentage declines since June 2020.

This was a sharp reversal after the major stock indexes had rallied on Monday and in the previous [week as investors had bet Tuesday’s data would show an easing in inflation](https://www.financedigest.com/dollar-dips-ahead-of-inflation-data-later-this-week.html "Dollar dips ahead of inflation data later this week") and provide a path for the Fed to ease its policy tightening. \[.N\]

But by Tuesday’s close, the prospects of more aggressive tightening were instead fueling investor [fears about the economy](https://www.financedigest.com/stocks-sink-on-fears-for-global-economy-capping-worst-h1-on-record.html "Stocks sink on fears for global economy, capping worst H1 on record").

As the day went on it seems that there’s growing [concern about the upcoming Fed](https://www.financedigest.com/shares-fall-with-oil-prices-amid-concerns-about-u-s-fed-rate-hikes.html "Shares fall with oil prices amid concerns about U.S. Fed rate hikes") meeting, concern that the Fed may make a more hawkish move than earlier anticipated,” said Greg Bassuk, chief executive of AXS Investments in New York.

What grows from that is the greater likelihood the [economy could be tipped into a recession.”](https://www.financedigest.com/world-bank-warns-global-economy-could-easily-tip-into-recession-in-2023.html "World Bank warns global economy could easily tip into recession in 2023")

The Dow Jones [Industrial Average fell 1,276.37 points](https://www.financedigest.com/partnerships-to-be-the-focal-point-of-medical-and-industrial-gloves-market.html "Partnerships to be the focal point of Medical And Industrial Gloves Market"), or 3.94%, to 31,104.97; while the S&P 500 declined 177.72 points, or 4.32%, to 3,932.69; and the Nasdaq Composite tumbled 632.84 points, or 5.16%, to 11,633.57.

Moderating inflation is key to higher equity [prices](https://www.financedigest.com/oil-ticks-up-as-u-s-inflation-cools-but-prices-set-for-monthly-drop.html "Oil ticks up as U.S. inflation cools, but prices set for monthly drop") and at the moment inflation is running hot. That implies volatility will remain more the norm than the exception into year-end.” said Terry Sandven, chief equity strategist at US Bank [Wealth Management](https://www.financedigest.com/analysis-credit-suisse-collapse-threatens-switzerlands-wealth-management-crown.html "Analysis-Credit Suisse collapse threatens Switzerland’s wealth management crown") in Minneapolis.

It clearly suggests the Fed [next week will deliver more of the same and remain unwavering in their pursuit to tame inflation.”](https://www.financedigest.com/britains-next-sees-lower-clothing-inflation-shares-dip-on-cautious-outlook.html "Britain’s Next sees lower clothing inflation, shares dip on cautious outlook")

MSCI’s gauge of stocks across the globe shed 3.39% in its [biggest daily decline since](https://www.financedigest.com/dollar-retreats-headed-for-biggest-weekly-loss-since-mid-january-bitcoin-down.html "Dollar retreats, headed for biggest weekly loss since mid-January; bitcoin down") June 13 after the index had risen in the previous four sessions.

“This was another disappointment. It’s the old Charlie Brown analogy. Every time we’re ready to kick the ball, it’s moved away from us.” said Mona Mahajan, senior [investment strategist](https://www.financedigest.com/invest-in-infrastructure-to-escape-the-starvation-cycle-warns-leading-nonprofit-sector-strategist.html "Invest In Infrastructure To Escape The ‘Starvation Cycle’, Warns Leading Nonprofit Sector Strategist") at Edward Jones.

In currencies the [dollar index rose 1.534% in its biggest one-day percentage gain](https://www.financedigest.com/stocks-mixed-dollar-gains-after-robust-inflation-jobs-data.html "Stocks mixed, dollar gains after robust inflation, jobs data") since March 19, 2020, with the euro down 1.46% to $0.9971 on Tuesday.

The Japanese yen [weakened 1.17% versus the safe-haven greenback at 144.52 per dollar](https://www.financedigest.com/oil-up-2-as-dollar-weakens-on-small-us-fed-rate-hike.html "Oil up 2% as dollar weakens on small US Fed rate hike"), while Sterling was last trading at $1.1499, down 1.54% on the day. \[FRX\]

Meanwhile, U.S. Treasury yields surged and a recession warning – the yield curve inversion – widened after the inflation data also bucked bond [investor expectations](https://www.financedigest.com/wave-of-lawsuits-over-ftx-expected-but-investors-will-face-legal-hurdles.html "‘Wave’ of lawsuits over FTX expected, but investors will face legal hurdles").

Benchmark 10-year [notes last fell 14/32 in price](https://www.financedigest.com/uk-house-prices-end-2022-on-a-weaker-note-after-pandemic-boom.html "UK house prices end 2022 on a weaker note after pandemic boom") to yield 3.4157%, from 3.362% late on Monday. The 2-year note last fell 10/32 in [price to yield](https://www.financedigest.com/stocks-jump-as-treasury-yields-ease-and-oil-prices-sell-off.html "Stocks jump as Treasury yields ease and oil prices sell off") 3.7434%, up from 3.571% in the previous session.

The gap between yields on two- and 10-year notes, [seen as a recession](https://www.financedigest.com/wall-street-seen-opening-higher-but-u-s-recession-priced-in.html "Wall Street seen opening higher but U.S. recession priced in") harbinger, was just under -33 basis points. \[US/\]

It [really comes down to how sticky inflation](https://www.financedigest.com/be-really-really-careful-on-inflation-bank-of-englands-haskel.html "Be ‘really, really careful’ on inflation – Bank of England’s Haskel") remains,” saidMauricio Agudelo, senior fixed income portfolio manager atHomestead Funds Advisers. It’s a battle that the [Fed willcontinue to fight and they will have to continue pressing,unfortunately at the risk of breaking](https://www.financedigest.com/oil-falls-on-demand-worry-as-fed-make-or-break-moment-approaches.html "Oil falls on demand worry as Fed ‘make or break moment’ approaches") something.

[Oil prices swung lower after the inflation data](https://www.financedigest.com/oil-jumps-on-lower-than-expected-us-inflation-data.html "Oil jumps on lower-than-expected US inflation data") and renewed COVID-19 curbs in China, the world’s second-largest oil consumer, also weighed on crude prices.

[Oil is generally priced](https://www.financedigest.com/oil-prices-dip-on-u-s-crude-reserve-release-inflation-pressure.html "Oil prices dip on U.S. crude reserve release, inflation pressure") in U.S. dollars, so a stronger greenback makes it pricier to holders of other currencies.

U.S. crude settled down 0.54% at $87.31 per barrel and Brent settled at $93.17, down 0.88% on the day.

The climbing [dollar also put pressure on gold](https://www.financedigest.com/stocks-and-gold-cheer-u-s-inflation-picture-while-dollar-slides.html "Stocks and gold cheer U.S. inflation picture, while dollar slides") prices. Spot [gold dropped 1.3%](https://www.financedigest.com/russian-gold-miner-polymetals-q3-revenue-down-13-y-y.html "Russian gold miner Polymetal’s Q3 revenue down 13% y/y") to $1,702.39 an ounce while U.S. gold futures fell 1.45% to $1,705.00 an ounce.

(Additional reporting by Herbert Lash and Caroline Valetkevitch in New York, Marc Jones in London, Yoruk Bahceli in Amsterdam; Editing by Louise Heavens, Nick Zieminski and Jonathan Oatis)


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