Stocks Waver After Suffering Worst Day Since June 2020

U.S. stocks wobbled between small gains and losses Wednesday, coming off a wild day of trading spurred by a stronger-than-expected inflation report.

The S&P 500 dropped 0.1%, a day after the benchmark index plummeted 4.3% in its worst selloff since June 2020. The Dow Jones Industrial Average fell 0.3%, while the tech-focused Nasdaq Composite gained 0.1%.

The release of U.S. inflation data for August on Tuesday spurred volatile moves across asset classes. The consumer-price reading showed the core inflation index, which excludes volatile energy and food figures, increased last month from a year earlier—indicating that broad price pressures strengthened.

The hot inflation report curbed investors’ hopes the Federal Reserve might slow its aggressive pace of interest-rate increases. That led traders on Tuesday to dump stocks across all sectors, sell bonds and cryptocurrencies, and push the U.S. dollar higher.

On Wednesday, markets seemed to take data measuring U.S. suppliers’ prices in stride. The producer-price index, which measures what suppliers are charging businesses and other customers, declined 0.1% from the month before, in line with economist expectations.

“We witnessed violent moves in the market yesterday as we reprice Fed and economic risk expectations,” said

Megan Horneman,

chief investment officer at Verdence Capital Advisors. “Today we’re absorbing such a destructive day.”

The latest U.S. inflation data curbed investors’ hopes the Federal Reserve might slow its aggressive pace of interest-rate increases.



Photo:

Julia Nikhinson/Associated Press

Some of Tuesday’s sharp market moves started to unwind Wednesday. The WSJ Dollar Index lost 0.4%, after notching its largest one-day jump since March 2020. Brent crude, which fell the day before, rose 1.3% to $94.32 a barrel.

Energy stocks rose broadly as Brent crude rebounded. The sector was the top gaining segment of the S&P 500 on Wednesday.

Among the top individual gainers in the S&P 500,

Starbucks

rose 5.8% after the coffee chain raised its longer-term financial outlook. The company now sees adjusted earnings-per-share growth over the next three years of 15% to 20%, up from its previous forecast of 10% to 12%.

Also making the index leaderboard,

Moderna

shares climbed 5.1% after its CEO told Reuters the company is open to supplying Covid vaccines to China.

Shares of railroad operators declined as a possible freight labor strike looms. The White House is assessing how other transportation providers could fill potential gaps in the nation’s freight network as labor unions and railroads continue contract talks.

Union Pacific

lost 4.9%, and

CSX

fell 3.1%.

Few market watchers were willing to suggest that volatile market moves may be in the rear-view mirror—especially until the Fed’s next meeting.

The Fed will make its next interest-rate policy decision next week. Federal-funds futures, used by traders to bet on interest-rate moves, showed a 68% chance that the central bank will lift rates by 0.75-percentage point. The data also show traders are assigning a 32% probability that the Fed will increase interest rates by 1 percentage point, according to CME Group data.

U.S. Treasury yields continued their upward climb, in another signal that investors are expecting higher interest rates.

The yield on the 10-year U.S. Treasury note rose to 3.427%, from 3.422% Tuesday. The yield on the two-year note, which is more sensitive to near-term rate expectations, climbed to 3.789%, from 3.754%. Yields and bond prices move in opposite directions. 

Some investors and strategists said the market may have overreacted Tuesday, especially after Fed Chairman

Jerome Powell

already said last month in Jackson Hole that the central bank must continue raising interest rates until it is confident inflation is under control.

“You’ve got this tension with dip buyers versus those who are selling the rally,” said Viraj Patel, global macro strategist at Vanda Research. “I think you can paint a very nice bullish picture and find plenty of evidence to buy equities, and you can paint a very nice bearish picture and find plenty of evidence to sell. That naturally means we are going to bounce around for a bit.”

Overseas, global indexes fell, following the U.S. stock market’s performance Tuesday. In Europe, the pan-continental Stoxx Europe 600 lost 1%. London’s FTSE 100 fell 1.2%, after U.K. inflation data showed that core consumer prices ticked up to 6.3% in August, from 6.2% in July, even as inflation eased slightly overall

In Asia, Hong Kong’s Hang Seng Index lost 2.5%, and the CSI 300 index of the largest stocks listed in Shanghai and Shenzhen was down 1.1%. Japan’s Nikkei 225 tumbled 2.8%.

Write to Caitlin McCabe at caitlin.mccabe@wsj.com and Dave Sebastian at dave.sebastian@wsj.com

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