U.S. Stocks Remain Sharply Lower After Early Sell-Off

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Following the sharp pullback seen early in the session, stocks continue to see substantial weakness in afternoon trading on Tuesday. The major averages are posting steep losses on the day, partly offsetting the rally seen over the four previous sessions.

Currently, the major averages are off their worst levels of the day but still firmly negative. The Dow is down 829.16 points or 2.6 percent at 31,552.18, the Nasdaq is down 450.39 points or 3.7 percent at 11,816.02 and the S&P 500 is down 117.48 points or 2.9 percent at 3,992.93.

The sell-off on Wall Street comes following the release of the Labor Department's highly anticipated report on consumer price inflation in the month of August.

The report showed an unexpected monthly uptick in consumer prices as well as a smaller than expected slowdown in the annual rate of price growth.

The Labor Department said its consumer price index inched up by 0.1 percent in August after coming in unchanged in July. Economists had expected consumer prices to edge down by 0.1 percent.

The modest increase in consumer prices came as higher prices for shelter, food and medical care offset another steep drop in gasoline prices.

Compared to the same month a year ago, consumer prices were up by 8.3 percent in August, reflecting a slowdown from the 8.5 percent spike in July. However, economists had expected the annual rate of growth to slow to 8.1 percent.

The report also showed core consumer prices, which exclude food and energy prices, climbed by 0.6 percent in August after rising by 0.3 percent in July. Core prices were expected to increase by another 0.3 percent.

Meanwhile, the annual rate of growth by core consumer prices accelerated to 6.3 percent in August from 5.9 percent in July. The annual rate of growth was expected to rise to 6.1 percent.

The data has led to renewed concerns about the outlook for interest rates ahead of the Federal Reserve's monetary policy meeting next week.

Paul Ashworth, Chief U.S. Economist at Capital Economics, said the faster than expected core price growth "confirms" that the Federal Reserve will raise interest rates by at least 75 basis points next week.

"There might be some late speculation that the Fed could even go for a 100bp hike although, with rates now close to neutral, we doubt that will happen," Ashworth said.

CME Group's FedWatch Tool is currently indicating a 78.0 percent chance of a 75 basis point rate hike and a 22.0 percent chance of a 100 basis point rate hike.

"This inflation report killed any chance of a downward shift in Fed tightening as core goods and services pricing pressures remain hot," said Edward Moya, senior market analyst and OANDA. "It doesn't seem companies are offering significant discounts here to lower inventories."

Sector News

Semiconductor stocks continue to turn in some of the market's worst performances on the day, resulting in a 4.6 percent nosedive by the Philadelphia Semiconductor Index.

Interest rate-sensitive housing stocks also continue to see substantial weakness, as reflected by the 4.4 percent plunge by the Philadelphia Housing Sector Index.

Oil service stocks have also come under considerable pressure over the course of the session, dragging the Philadelphia Oil Service Index down by 4.1 percent.

The sell-off by oil service stocks comes amid a sharp pullback by the price of crude oil, with crude for October delivery tumbling $2.34 to $85.44 a barrel.

Retail, telecom and airline stocks are also seeing notable weakness in afternoon trading amid broad based selling on Wall Street.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Tuesday. Japan's Nikkei 225 Index rose by 0.3 percent, while China's Shanghai Composite Index inched up by 0.1 percent.

Meanwhile, the major European markets moved sharply lower following the U.S. inflation report. While the U.K.'s FTSE 100 Index slumped by 1.2 percent, the French CAC 40 Index tumbled by 1.4 and the German DAX Index dove by 1.6 percent.

In the bond market, treasuries have climbed off their worst levels of the day but remain firmly negative. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, is up by 6.2 basis points at 3.424 percent.

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