Stocks cratered today after the August CPI “monkey hammered” shares lower. The Dow, S&P, and Nasdaq Composite all plunged at the open before falling further. Tech shares saw the worst losses on the day.
And it’s all thanks to inflation, as usual, which was far hotter than expected last month. The headline CPI print rose 8.3% year-over-year (YoY), blowing past the 8.1% YoY estimate thanks to a big core reading. Core CPI, which excludes energy and food, rose 0.6% month-over-month (MoM), doubling the expected gain of 0.3% MoM.
The market reacted very poorly to the report as analysts scrambled to predict what comes next for traders.
“We saw this tug of war between goods moderating and services remaining strong. This is not a tug of war. They both moved up,” said Nomura strategist Rob Dent.
“Right now I think the Fed is going to be looking at this with a lot of concern. There is no good news across this report.”
AJ Bell’s Danni Hewson offered a similar take:
“Prices that have been bubbling over take time to cool and markets have been a little over enthusiastic in the last few days about the prospect of less aggressive rate hikes from the Fed in the near future. The reality is that whilst most things seem to be going in the right direction, there are still significant headwinds when it comes to things like electricity and gas supplies and simply keeping a roof over people’s heads. Realistically, there’s nothing in today’s figures to convince central bankers to switch tack and looking at rate hike probabilities 86% still expect a 75 basis point hike in the coming days.”
With a 75 basis point hike all but guaranteed, investors began wondering if 100 basis points was on the table. According to Wall Street Journal chief economics correspondent (and Fed mouthpiece) Nick Timiraos, a 100 basis point increase is now a real possibility.
“The acceleration in inflation last month clinches the case for the Federal Reserve to lift interest rates by at 0.75 percentage point at its meeting next week and raises the prospect of hefty increases continuing in coming months,” Timiraos said.
That’s bad for S&P bulls with the index approaching key support at 3,900 once more. The index rocketed lower today, closing below the 10, 20, and 50-day moving averages in one fell swoop. Another bad day tomorrow could easily trigger a run to the June lows if 3,900 fails to hold.
Advanced Micro Devices (NASDAQ: AMD) is in almost the same predicament, except that it already touched support this morning. The stock has spent several weeks falling but now faces another test after failing to rally.
AMD, like the SPY, closed below its 10-day moving average today. The stochastic indicator also suggests the stock is no longer oversold and has room to fall.
For those reasons, it might make sense to take AMD short with a trade trigger of $77.15, below today’s low and support, as the general market looks to stabilize itself.
P.S. We recorded a short tutorial that reveals how a strange 10-day market anomaly helps spot more trades like this one every day. Go here for the full story…