Sumary of Why the Stock Market Tanked After a Tame Inflation Report:
- On a percentage basis, the Nasdaq Composite (NASDAQINDEX:^IXIC) and S&P 500 (SNPINDEX:^GSPC) had smaller losses than the Dow Jones Industrial Average (DJINDICES:^DJI), but small-cap stocks reacted even more negatively.
- Index Percentage Change Point Change Dow (0.84%) (292) S&P 500 (0.57%) (26) Nasdaq (0.45%) (68) Data source: Yahoo!
- Yet even a lower-than-expected reading on the Consumer Price Index wasn’t enough to calm nerves among investors.
- The core CPI is up 4% from where it was this time last year, and while both numbers are lower than they were last month, they’re still well above the targeted 2% inflation rate that the Federal Reserve has historically used as a long-term target.
- Rather, we should get a month or two of steep price declines in order to make up for the unsustainably high year-over-year inflation rates that we’ve seen throughout much of 2021. Nevertheless, it was clear from the financial markets on Tuesday that investors have no expectations that the Fed will change its course.
- Treasury bond yields moved lower, reflecting the fact that even slightly tamer inflation numbers will give central bankers the justification they need to keep interest rates low just a little bit longer.