Recent rally annihilated by inflation

Wall Street tumbled after the consumer-price index rose 8.3% in August compared with 12 months earlier, down for the second month in a row after hitting a 40-year high of 9.1% in June, but above analysts’ expectations. Shelter, medical care and food prices continue to climb, a sign that household budgets are under strain despite the drop in the price of gasoline. The Federal Reserve will likely signal a more hawkish stance next week (+75 basis points expected) and remain aggressive on future hikes. As a result, Treasury yields climbed again for the eighth consecutive week (check the Fixed Income Market Recap here).

The benchmark S&P 500 plunged 4.77% week-over-week, down 18.73% year-to-date. The Dow Jones Industrial Average lost 4.13% (down 15.18% YTD). The Nasdaq took a nosedive (down 5.48% for the week, down 26.82% YTD).

European stocks wobbled too (MSCI EMU down 2.37% for the week, down 19.47% YTD). The FTSE 100 fell 1.56% below the 7,250 level (-2.00% YTD). Asian equity markets did not fare better. Japan’s Nikkei slid 2.29% (-4.25% YTD). The Shanghai Composite fell 4.16% (-14.10% YTD). China is still locked into a seemingly endless zero-COVID policy. 

Market selloff reverberates across all sectors   

A sea of red swamped all the S&P sectors with materials (-6.65%), real estate (-6.48%), communication services (-6.43%, pushed lower by Meta Platforms shares in free fall - down 13.51%), industrials (-6.38%), and information technology (-6.12%) taking the biggest hit. Industrials were pressured by a 23% plunge in FedEx stocks after the express delivery giant reported weak quarterly results while predicting a global recession. This profit warning intensifies investors' macroeconomic worries as FedEx's report usually represents the proverbial “canary in the coal mine” for U.S. corporate earnings.

Defensive sectors such as health care (-2.38%), consumer staples (-3.63%) and utilities (-3.82%) fared a little better than the broad market. Energy, meanwhile, also finished in negative territory (down 2.60%), weighed down by weaker oil prices (WTI crude oil down 1.94%) at a time when the U.S. is expected to release more petroleum from its strategic reserves.