Stocks Suffer Worst Day Since June 2020
Annual inflation eased to 8.3% in August but came in higher than economists anticipated
3 min
Stocks suffered their worst day in more than two years after hotter-than-expected inflation data dashed investors’ hopes that cooling price pressures would prompt the US Federal Reserve to moderate its campaign of interest-rate increases.
Investors sold everything from stocks and bonds to oil and gold. All 30 stocks in the Dow Jones Industrial Average declined, as did all 11 sectors in the S&P 500. Only five stocks in the broad benchmark finished the session in the green. Facebook parent Meta Platforms dropped 9.4%, BlackRock declined 7.5% and Boeing fell 7.2%.
The Dow fell 1276.37 points, or 3.9%, to 31104.97. The S&P 500 declined 177.72 points, or 4.3%, to 3932.69. The Nasdaq Composite slid 632.84 points, or 5.2%, to 11633.57.
All three indexes posted their steepest one-day losses since June 11, 2020. The declines left the Dow industrials down 14% in 2022, while the S&P 500 has lost 17% and the Nasdaq Composite has retreated 26%.
Investors had eagerly anticipated Tuesday’s release of the consumer-price index, which provided a last major look at inflation before the central bank’s interest-rate-setting committee meets next week. Expectations for the path of monetary policy have held sway over the markets as investors factor higher rates into asset prices and try to project how well the economy will hold up as rates rise.
“It increases the probability of recession if the Fed has to move more significantly to address inflation,” said Chris Shipley, chief investment strategist for North America at Northern Trust Asset Management.
The new data showed the consumer-price index rose 8.3% in August from the same month a year ago. That was down from 8.5% in July and 9.1% in June—the highest inflation rate in four decades.
The figures show inflation is easing, but at a slower pace than investors and economists had anticipated. Economists surveyed by The Wall Street Journal had been expecting consumer prices to rise 8% annually in August.
Analysts had hoped that officials would consider easing their pace of interest-rate increases if data continued to show inflation subsiding. The data undercut those hopes, seeming to settle the case for the Fed to raise rates by at least 0.75 percentage point next week. After the release, stock futures fell, bond yields rose and the dollar rallied.
Traders began to consider the possibility that the central bank will raise interest rates by a full percentage point next week.
As of Tuesday afternoon, they assigned a 34% probability to a 1-percentage-point increase at that meeting, up from a 0% chance a day earlier, according to CME Group’s FedWatch Tool.
The market-based probability of a half-percentage-point increase, by contrast, fell to 0% from 9% on Monday, according to the CME data.
The most likely scenario remained an increase of 0.75 percentage point.
Beyond next week, the suggestion that inflation is sticking around raises the possibility that the Fed might ultimately raise rates higher than markets had been anticipating.
“That’s really the challenge,” said Matt Forester, chief investment officer of Lockwood Advisors at BNY Mellon Pershing. “The Fed might have to do a lot more work in order to contain inflation.”
Fed Chairman Jerome Powell said earlier this month that the central bank is squarely focused on bringing down high inflation to prevent it from becoming entrenched as it did in the 1970s.
With Tuesday’s declines, the S&P 500 is up 7.3% from its June low. While investors broadly expect volatility to continue shaking the stock market, some suspect the economy remains strong enough to avert a major leg lower from here.
“We think a lot of the weakness is likely in the price at this stage,” said Holly MacDonald, chief investment officer at Bessemer Trust.
Still, the reaction to the new inflation reading could be seen across asset classes on Tuesday.
The communication services, technology and consumer discretionary sectors of the S&P 500 all fell more than 5%. Semiconductor stocks were particularly hard hit: Nvidia, Advanced Micro Devices and Micron Technology declined more than 7%.
In bond markets, the yield on the benchmark 10-year U.S. Treasury note jumped to 3.422%—near its highest level of 2022—from 3.361% Monday. Meanwhile, the yield on the two-year note, which is more sensitive to near-term rate expectations, settled at 3.754%, the highest since 2007. Yields and prices move in opposite directions. The rise in bond yields was an additional sign that investors were expecting higher interest rates after the data.
Brent crude, the international benchmark for oil prices, fell 0.9% to $93.17 a barrel. Gold prices declined 1.3%.
The U.S. dollar, by contrast, rallied Tuesday. The WSJ Dollar Index, which measures the greenback against a basket of other currencies, rose 1.4% in its largest one-day gain since March 2020. The strong dollar has weighed on the value of other currencies against the greenback this year.
Overseas, the pan-continental Stoxx Europe 600 fell about 1.5%. In Asia, major indexes closed mixed. South Korea’s Kospi Composite rallied 2.7% , while Hong Kong’s Hang Seng declined 0.2%.
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Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual
Government spending, including Biden’s Inflation Reduction Act, has helped drive a gap between clean-energy spending and fossil-fuel investments
3 min
Investments in solar power are on course to overtake spending on oil production for the first time, the foremost example of a widening gap between renewable-energy funding and stagnating fossil-fuel industries, according to the head of the International Energy Agency.
More than $1 billion a day is expected to be invested in solar power this year, which is higher than total spending expected for new upstream oil projects, the IEA said in its annual World Energy Investment report.
Spending on so-called clean-energy projects—which includes renewable energy, electric vehicles, low-carbon hydrogen and battery storage, among other things—is rising at a “striking” rate and vastly outpacing spending on traditional fossil fuels, Fatih Birol, the IEA’s executive director said in an interview. The figures should raise hopes that worldwide efforts to keep global warming within manageable levels are heading in the right direction, he said.
Birol pointed to a “powerful alignment of major factors,” driving clean-energy spending higher, while spending on oil and other fossil fuels remains subdued. This includes mushrooming government spending aimed at driving adherence to global climate targets such as President Biden’s Inflation Reduction Act.
“A new clean global energy economy is emerging,” Birol told The Wall Street Journal. “There has been a substantial increase in a short period of time—I would consider this to be a dramatic shift.”
A total of $2.8 trillion will be invested in global energy supplies this year, of which $1.7 trillion, or more than 60% will go toward clean-energy projects. The figure marks a sharp increase from previous years and highlights the growing divergence between clean-energy spending and traditional fossil-fuel industries such as oil, gas and coal. For every $1 spent on fossil-fuel energy this year, $1.70 will be invested into clean-energy technologies compared with five years ago when the spending between the two was broadly equal, the IEA said.
While investments in clean energy have been strong, they haven’t been evenly split. Ninety percent of the growth in clean-energy spending occurs in the developed world and China, the IEA said. Developing nations have been slower to embrace renewable-energy sources, put off by the high upfront price tag of emerging technologies and a shortage of affordable financing. They are often financially unable to dole out large sums on subsidies and state backing, as the U.S., European Union and China have done.
The Covid-19 pandemic appears to have marked a turning point for global energy spending, the IEA’s data shows. The powerful economic rebound that followed the end of lockdown measures across most of the globe helped prompt the divergence between spending on clean energy and fossil fuels.
The energy crisis that followed Russia’s invasion of Ukraine last year has further driven the trend. Soaring oil and gas prices after the war began made emerging green-energy technologies comparatively more affordable. While clean-energy technologies have recently been hit by some inflation, their costs remain sharply below their historic levels. The war also heightened attention on energy security, with many Western nations, particularly in Europe, seeking to remove Russian fossil fuels from their economies altogether, often replacing them with renewables.
While clean-energy spending has boomed, spending on fossil fuels has been tepid. Despite earning record profits from soaring oil and gas prices, energy companies have shown a reluctance to invest in new fossil-fuel projects when demand for them appears to be approaching its zenith.
Energy forecasters are split on when demand for fossil fuels will peak, but most have set out a timeline within the first half of the century. The IEA has said peak fossil-fuel demand could come as soon as this decade. The Organization of the Petroleum Exporting Countries, a cartel of the world’s largest oil-producing nations, has said demand for crude oil could peak in developed nations in the mid-2020s, but that demand in the developing world will continue to grow until at least 2045.
Investments in clean energy and fossil fuels were largely neck-and-neck in the years leading up to the pandemic, but have diverged sharply since. While spending on fossil fuels has edged higher over the last three years, it remains lower than pre pandemic levels, the IEA said.
Only large state-owned national oil companies in the Middle East are expected to spend more on oil production this year than in 2022. Almost half of the extra spending will be absorbed by cost inflation, the IEA said. Last year marked the first one where oil-and-gas companies spent more on debt repayments, dividends and share buybacks than they did on capital expenditure.
The lack of spending on fossil fuels raises a question mark around rising prices. Oil markets are already tight and are expected to tighten further as demand grows following the pandemic, with seemingly few sources of new supply to compensate. Higher oil prices could further encourage the shift toward clean-energy sources.
“If there is not enough investment globally to reduce the oil demand growth and there is no investment at the same time [in] upstream oil we may see further volatility in global oil prices,” Birol said.
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual
