Wild comeback: Dow bounces off 700-point one-day slump

Wednesday’s consumer price index report was the last glimmer of hope for investors bracing for a half-point rate cut from the Federal Reserve when it meets next week.

That hope is now gone, and Wall Street has taken it hard. But traders managed to overcome their fears by the end of the day.

About two hours after the release of the August CPI report, which showed the annual pace of price increases cooled to 2.5 percent, the slowest level since February 2021, the Dow was down 700 points, or 1.7 percent. fell to But with an hour of trading on the day, the Dow had erased those losses, barely into positive territory. The S&P 500 and Nasdaq Composite, which were similarly down earlier in the day, also turned positive on Wednesday afternoon.

The Dow ended Wednesday up about 124 points, or 0.3 percent, after the day’s close. The S&P 500 gained about 1% while the Nasdaq Composite gained 2.2%.

Such large market swings are not unusual for the month of September, which has historically been volatile for stocks.

The CPI report also showed that on a monthly basis, prices rose 0.2 percent, unchanged from July.

But what got a lot of attention was the 0.3% month-on-month rise in the core CPI gauge, which excludes food and energy. That beat economists’ expectations for a 0.2% rise. Fed officials pay close attention to core inflation readings because they can provide more clarity about where prices are headed over the long term.

A higher-than-expected increase in core inflation will likely cause central bank officials to proceed more cautiously when deciding whether and by how much to cut interest rates.

On Tuesday, traders were pricing in a 34 percent chance the Fed would cut rates by half a point. But after the CPI data was released on Wednesday morning, traders priced in a 15 percent chance. They are now pricing in an 85% chance of a quarter-point cut this month, as well as a higher chance of a quarter-point cut at the November meeting than a half-point.

Investors generally prefer when interest rates are low because it means companies can borrow money more cheaply, which often increases profits.

Market Rebound: What It Means for Investors

After a dramatic drop in the stock market earlier this week, things took a surprising turn by the end of the day. On Wednesday, the Dow Jones Industrial Average, a key indicator of the stock market’s health, experienced a sharp 700-point decline, which initially had investors worried. This drop came after the latest Consumer Price Index (CPI) report was released, showing that inflation, or the rate at which prices for goods and services are rising, had slowed down to 2.5 percent annually. This is the slowest inflation rate since February 2021.

While the CPI report might sound good because inflation is lower, it also showed a bigger-than-expected increase in core inflation, which excludes food and energy prices. Core inflation rose by 0.3% from the previous month, surpassing economists’ expectations of a 0.2% rise. This is important because the Federal Reserve, which is the central bank that controls interest rates, closely watches core inflation to make decisions about monetary policy.

Before the CPI report, many traders thought there was a good chance that the Federal Reserve would cut interest rates by half a point. Lower interest rates can make it cheaper for businesses and consumers to borrow money, which can boost economic activity. However, the unexpected rise in core inflation made traders less confident about a big rate cut. Instead, they now believe there is an 85% chance of a smaller, quarter-point rate cut this month, and possibly another quarter-point cut in November.

Despite the rocky start, the stock market made a strong recovery by the end of the day. The Dow, after being down 700 points, ended up gaining about 124 points, or 0.3%. The S&P 500 and Nasdaq Composite, two other major stock indices, also managed to finish the day in positive territory, with the Nasdaq gaining a notable 2.2%.

September is often a turbulent month for the stock market, with many ups and downs. This can be due to a variety of factors, including investor reactions to economic data and changes in monetary policy. For investors, understanding these market movements is crucial for making informed decisions.

Overall, the wild swings in the market this week remind us that the financial world can be unpredictable, and staying informed about economic indicators and central bank decisions is essential for navigating these changes.