TORONTO — North American markets tumbled Tuesday after the latest reading on U.S. inflation disappointed traders, with Canada's main stock index down more than 300 points and all three major U.S. stock indexes suffering their worst day since June 2020.
The S&P/TSX composite index was down 341.83 points at 19,645.40.
In New York, the Dow Jones industrial average was down 1,276.37 points at 31,104.97. The S&P 500 index was down 177.72 points at 3,932.69, while the Nasdaq composite was down 632.84 points at 11,633.57.
The sell-off ended a four-day winning streak for the major U.S. stock indexes.
Bond prices also fell sharply, sending their yields higher, after the latest U.S. Consumer Price Index report showed inflation decelerated only to 8.3 per cent in August, instead of the 8.1 per cent economists expected.
As a result, odds are increasing that the U.S. Federal Reserve will raise its key interest rate next week by a full percentage point, but three-quarters of a percentage point continues to be the more likely outcome, CIBC's Executive Director of Institutional Equity Research Sid Mokhtari said.
But if the central bank does hike a full percentage point next week, the markets could get rocky.
"That's a big surprise, to be fair with you. And I think that's where we go right back to the (market) lows we had in the summertime," he said.
"If there is a shock to the market on the downside because of that magnitude of a rate hike, it would probably be done by the larger cap group of stocks that did not correct in the same fashion as the rest of the market did in the summer. And those were the larger cap technology names in the U.S. that were holding the S&P 500."
However, that could prove to be the next best buying opportunity, according to Mokhtari.
Mokhtari anticipates markets will be range-bound over the next little while.
"It's very important to approach this with a barbell strategy, with utilities on one side of the ledger and then look for risk-reward opportunities within growthier areas, or areas that may be emerging, assuming there's a bottom building in the market, which I believe, may begin to develop as we get past the month of September," he said.
He noted that September is historically the weakest month in terms of stock returns.
Another looming challenge for stocks before decision day for the U.S. Federal Reserve will be what is known in the financial world as Quadruple Witching Day, happening Friday, Sept. 16. On this day, derivatives of stock index futures, stock index options, stock options, and single stock futures will expire simultaneously.
The October crude contract was down 47 cents at US$87.31 per barrel and the October natural gas contract was up three-and-a-half cents at US$8.28 per mmBTU.
The December gold contract was down US$23.20 at US$1,717.40 an ounce and the December copper contract was down five-and-a-half cents at US$3.56 a pound.
The Canadian dollar traded for 76.28 cents US compared with 77.04 cents US on Monday.
This report by The Canadian Press was first published Sept. 13, 2022.
— With files from The Associated Press
Companies in this story: (TSX:GSPTSE, TSX:CADUSD=X)
Adena Ali, The Canadian Press
