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%.
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
Just five stocks in the S&P 500 managed to close higher on Tuesday, and none of them gained even 1%
— Jesse Pound
Homebuilder stocks were crushed in Tuesday's market sell-off.
Lennar and Taylor Morrison led the way, with both closing down nearly 8%. Pulte and KB Home dropped around 7% each, while Toll Brothers, D.R. Horton and NVR all lost almost 6%.
| TICKER | COMPANY | NAME | %CHANGE | PREVIOUS CLOSE |
|---|---|---|---|---|
| NVR | NVR Inc | NVR | UNCH | 7,669.94 |
| DHI | D.R. Horton Inc | DHI | UNCH | 145.74 |
| TOL | Toll Brothers Inc | TOL | UNCH | 113.42 |
| KBH | KB Home | KBH | UNCH | 60.92 |
| PHM | Pultegroup Inc | PHM | UNCH | 106.15 |
| TMHC | Taylor Morrison Home Corp | TMHC | UNCH | 53.80 |
| LEN | Lennar Corp | LEN | UNCH | 151.88 |
With the housing market already in a recession, the possibility of higher mortgage rates weighed on investors as inflation data came in higher than expected. That cooled hopes of less aggressive rate hikes by the Federal Reserve.
— Michelle Fox
Oil prices reversed course during mid-morning trading on Wall Street, and remained lower throughout the session following the latest inflation reading.
West Texas Intermediate crude, the U.S. oil benchmark, settled at $87.31 per barrel, for a loss of 0.54%. Global benchmark Brent crude declined 0.88% to end the day at $93.17 per barrel.
U.S. natural gas, however, advanced 0.42% to $8.28 per million British thermal units. Lumber, meantime, hit its highest level since August 18.
— Pippa Stevens, Gina Francolla
The Dow's 3.94% and 1,276 point slide was its worst of the year:
| Date | Point Change | % Change |
| 9/13/2022 | -1,276 | -3.94% |
| 5/18/2022 | -1,165 | -3.57% |
| 5/5/2022 | -1,063 | -3.12% |
| 8/26/2022 | -1,008 | -3.03% |
| 4/22/2022 | -981 | -2.82% |
The S&P 500's 4.32% crush was its worst drop of the year:
| Date | Change % |
| 9/13/2022 | -4.32% |
| 5/18/2022 | -4.04% |
| 6/13/2022 | -3.88% |
| 4/29/2022 | -3.63% |
| 5/5/2022 | -3.57% |
Tuesday's sell-off surpassed in magnitude the down days that occurred in May and June as the market tumbled to its low for the year in mid-June.
As it stands at Tuesday's close, the S&P 500 is 8% above its intraday low touched on June 17. The Dow is about 5% above its 2022 intraday low hit on the same day.
The intensity of Tuesday's plunge doesn't bode well for traders betting the ultimate bottom is in.
—John Melloy
A number of stocks sank to their lowest level in at least a year on Tuesday, as the Dow tumbled the most since June 2020 following the hotter-than-expected inflation report.
Here were some of the notable movers:
Disclosure: Comcast is the parent company of NBCUniversal, which includes CNBC.
— Chris Hayes, Pippa Stevens
Albemarle surged to a record high Tuesday, despite the broad-based selling across the market. The lithium company has attracted interest from investors amid an expected boom in demand for electric vehicles.
Shares of Albemarle have gained more than 27% this year.
"We believe the supply/demand fundamentals support higher-for-longer lithium prices, which would be a positive long-term tailwind for ALB," RBC said in a Sept. 8 note to clients. The firm called Albemarle one of its best ideas for the long term.
— Pippa Stevens
Cryptocurrencies had a down day alongside stocks on Tuesday as the hot August CPI report spurred investors to dump riskier assets.
Bitcoin shed 9.66% on Tuesday, falling to $20,249.8 per coin at 4:00 p.m. ET according to Coin Metrics. It is the lowest level for bitcoin since June 18. The fall reversed earlier gains that saw the digital coin jump to more than $22,000 per coin.
Ether, the coin associated with Ethereum, also slumped 7.49% to $1,596.82 by market close Tuesday for its worst day since Aug. 26. Cryptocurrencies are awaiting the "Merge," when the exchange will switch from a proof-of-work model to one that uses proof-of-stake.
Ripple and Litecoin also declined, falling 5.4% and 2.6%, respectively, according to Coin Metrics.
—Carmen Reinicke
A brutal final hour of selling resulted in the Dow, Nasdaq Composite and S&P 500 suffering their worst day since June 2020. The Nasdaq Composite was the worst performer, falling more than 5%.
— Jesse Pound
The three major averages are now on track for their worst day of 2022 as the market rout has deepened in the final hour. The Nasdaq Composite dropped more than 5%, the S&P 500 fell more than 4%, and the Dow has shed more than 1,200 points.
— Jesse Pound
After Tuesday's hot inflation report, shelter and wages will be two key areas of focus for investors in the months ahead, according to Lauren Goodwin, economist and portfolio strategist at New York Life Investments.
Rising shelter costs were a major driver of inflation in August, and a tight labor market has led to concerns that wage growth may make it more difficult for the Fed to bring down inflation.
"Shelter and wage inflation together are such a leading indicator into how close we are to price pressures abating. They tend to be sticky. ... And that combo of just a standout shelter price inflation number and the wages we saw from the August jobs report is worrisome," Goodwin said.
Goodwin noted that, even though wage growth is nominally strong, it is not keeping up with headline inflation on an annual basis.
— Jesse Pound
The rout on Wall Street worsened in afternoon trading, with the Dow falling more than 1,000 points for its worst day since May. The Nasdaq Composite has dropped more than 4% as surging yields hit high-growth tech stocks.
— Jesse Pound
Some funds tracking other asset classes like Treasurys, currencies, and commodities are doing well on Tuesday despite another down day for equity markets.
Tuesday's steep market sell-off came amid another hot inflation reading for August which dimmed investors' expectation of easing inflation and a less hawkish Federal Reserve ahead.
CNBC Pro readers can read about some of the funds trading in positive territory and the potential factors contributing to their strong performance here.
— Samantha Subin
Twitter shareholders voted in favor of Elon Musk's $44 billion bid to snap up the social media company and take it private.
The vote arrives as the billionaire seeks to back out of the deal. Musk has called into question the number of fake accounts on the platform claiming that the number of these phony accounts is higher than what Twitter has disclosed. Meanwhile, the social media company has stuck to its calculation that less than 5% of monetizable daily active users are fake or spam.
Shares of Twitter jumped more than 2% on Tuesday afternoon.
— Darla Mercado, Lauren Feiner
Tuesday is shaping up to be one of the worst days of 2022 for the Dow, which has fallen more than 800 points.
That makes this one of the 10 worst days of the year, in terms of points lost. If the 30-stock closed at its session low of more than 900 points, it would end up as the sixth-worst day of the year.
| DATE | Point Change | % Change |
| 18-May | -1,165 | -3.57 |
| 5-May | -1,063 | -3.12 |
| 26-Aug | -1,008 | -3.03 |
| 22-Apr | -981 | -2.82 |
| 29-Apr | -939 | -2.77 |
| 10-Jun | -880 | -2.73 |
| 13-Jun | -876 | -2.79 |
| 13-Sep | -844 | -2.61 |
| 26-Apr | -809 | -2.38 |
| 7-Mar | -797 | -2.37 |
Source: FactSet
Dow points can sometimes be a misleading metric for comparing performance, but the 2.6% decline on Tuesday makes it one of the worst days of the year in percentage terms, as well.
—Jesse Pound
While projections for a decline in inflation in August missed the mark on Tuesday, there are still signs that inflation is moderating, according to Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Company.
Schutte noted that the report is "backward" looking and that some areas where more current data shows a softening of prices, such as housing, that may take awhile to show up in CPI.
"It's certainly taking some time to filter into the data, and it is a show-me market. Is it a show-me Fed? I guess we'll see. I think it probably is," Schutte said.
He added that Friday's consumer sentiment report from the University of Michigan could take on increased importance now, as the Fed has said it is watching consumer inflation expectations.
"They certainly can't pause when inflation is still show high, but how much faster do they have to keep going?"
— Jesse Pound
Nomura economists now expect the Federal Reserve to raise interest rates by a full percentage point next week, after August's hotter-than-expected consumer inflation report.
The economists had previously expected a 75 basis point hike which is the consensus view of economists. A basis point equals 0.1 of a percentage point.
They announced the change after the August consumer price index came in up 0.1%, while economists polled by Dow Jones had expected a decline of 0.1%. The Nomura economists said "the broad-based strength across both monthly core goods and core services inflation – suggests a series of upside inflation risks may be materializing."
Therefore, they expect the Fed to respond more forcefully.
"Beyond September, we continue to expect a 50bp hike in November, but now anticipate another 50bp hike in December, 25bp higher than our previous forecast. With our February 2023 expectation of a 25bp hike unchanged, our terminal rate forecast now stands at 4.50-4.75%, 50bp higher," they wrote.
—Patti Domm
August's surprisingly hot consumer price index showed that inflation is not just a gasoline issue.
Inflation was broad last month, with shelter costs rising 0.7% for the month. New vehicle prices and medical care services increased 0.8% each.
And even as gas prices have declined, food prices continue to rise. The food at home index, a proxy for grocery prices, is up 13.5% over the past year.
"The core inflation numbers were hot across the board. The breadth of the strong price increases, from new vehicles to medical care services to rent growth, everything was up strongly," said Mark Zandi, chief economist at Moody's Analytics. "That was the most disconcerting aspect of the report."
— Jeff Cox, Jesse Pound
One of the market's rare bright spots on Tuesday comes from the clean energy space.
Shares of First Solar ticked up about 0.45% amid the broad market declines. The stock hit its highest level since June 30, 2011.
First Solar has been on a hot streak recently and is up about 16% over the past month.
—Jesse Pound, Gina Francolla
The yield on the 3-month U.S. T-bill jumped to a high of 3.325% on Tuesday morning. It's the highest level since Jan. 2, 2008, when the 3-month yield climbed as high as 3.58%.
The spread between the 3-month yield and the 10-year Treasury also narrowed, reaching a low of 1.03 – and the lowest level since Aug. 30 when the spread was as low as 0.49. The spread between the 3-month and the 10-year rates are a key indicator that the New York Federal Reserve watches closely to measure the likelihood of a recession.
Bond yields across the board have jumped following the release of a hotter-than-expected consumer price index report for August. Investors are banking on tougher moves from the Fed to keep inflation in check.
—Darla Mercado, Gina Francolla