Dow tumbles 1,200 points for worst day since June 2020 after hot inflation report

Pro Picks: Watch all of Tuesday's big stock calls on CNBC
Pro Picks: Watch all of Tuesday's big stock calls on CNBC

Stocks fell sharply on Tuesday after a key August inflation report came in hotter than expected, hurting investor optimism for cooling prices and a less aggressive Federal Reserve.

The Dow Jones Industrial Average slid 1,276.37 points, or 3.94%, to close at 31,104.97. The S&P 500 dropped 4.32% to 3,932.69, and the Nasdaq Composite sank 5.16% to end the day at 11,633.57.

Just five stocks in the S&P 500 finished in positive territory. Tech stocks were hit particularly hard, with Facebook-parent Meta skidding 9.4% and chip giant Nvidia shedding 9.5%.

The drop erased nearly all of the recent rally for stocks, pulling the S&P 500 back toward its Sept. 6 close of 3,908 and causing some traders to glance back at mid-June, when the index fell below 3,700.

"I think we may even go back and retest the June lows," UBS director of floor operations Art Cashin said Tuesday on CNBC's "Squawk on the Street."

"Certainly the 3900 is just so tempting, and you're pulling back below the 50-day moving average here. It's very much about the technicals. It's not so much that the one number made the economy go topsy-turvy. It meant a lot of guys who were making preliminary favorable bets got caught off base," he said.

The August consumer price index report showed a higher-than-expected reading for inflation. Headline inflation rose 0.1% month over month, even with falling gas prices. Core inflation rose 0.6% month over month. On a year-over-year basis, inflation was 8.3%.

Economists surveyed by Dow Jones had been expecting a decline of 0.1% for overall inflation, with a rise of 0.3% for core inflation.

The report is one of the last the Fed will see ahead of their Sept. 20-21 meeting, where the central bank is expected to deliver its third consecutive 0.75 percentage point interest rate hike to tamp down inflation. The unexpectedly high August report could lead the Fed to continue its aggressive hikes longer than some investors anticipated.

The moves comes after four straight positive sessions for U.S. stocks, which were bolstered in part by the belief of many investors that inflation had already peaked.

"The CPI report was an unequivocal negative for equity markets. The hotter than expected report means we will get continued pressure from Fed policy via rate hikes," said Matt Peron, director of research at Janus Henderson Investors. "It also pushes back any 'Fed pivot' that the markets were hopeful for in the near term."

The sell-off was especially painful in high-growth areas of the market. Cloudflare fell more than 10%, while Unity Software sank about 13.4%. Shares of direct-to-consumer auto retailer Carvana slid 12.9%.

Lea la cobertura del mercado de hoy en español aquí.

Stocks will retest the June lows in the next couple of months, Dan Nathan says

Dan Nathan,  principal of RiskReversal Advisors, told CNBC "I'm going to say this again and again during the market selloff, we're going to retest those market lows that we had in June over the next couple of months. There's no reason to buy any of these stocks on a day like today."

The S&P 500 closed more than 7% above its June 16 closing low on Tuesday.

— Scott Schnipper

These were the only S&P 500 stocks to rise on Tuesday

Just five stocks in the S&P 500 managed to close higher on Tuesday, and none of them gained even 1%

  • Corteva: up 0.87%
  • Twitter: up 0.80%
  • CF Industries: up 0.67%
  • Albemarle: up 0.38%
  • Mosaic: up 0.32%

— Jesse Pound

Homebuilder stocks sell off

Homebuilder stocks were crushed in Tuesday's market sell-off.