The stock market fell the most since June 2020 on fears the Federal Reserve will react with a bigger-than-expected interest rate hike.
Equity traders saw virtually all of a four-day surge wiped out Tuesday after the government said August inflation was hotter than feared.The stock market fell the most since June 2020 following Wall Street’s humbling realization that inflation is not slowing as much as hoped.A hotter-than-expected report on inflation Tuesday has traders bracing for the Federal Reserve to ultimately raise interest rates even higher than expected, with all the risks for the economy that entails.
“It’s a big mess today,” said Matthew Tuttle, chief executive officer at Tuttle Capital Management LLC. “The CPI numbers stunk. People were leaning toward them being cooler than expected, and coming out hotter than expected obviously cut a lot of people on the foot.” The synchronized retreat highlights a signature hazard of 2022′s markets, that everything is at risk of moving in lockstep. The obsession with economic data has contributed to spike in a measure of cross-asset correlation tracked by Barclays Plc, with recent readings ranking among the highest of the past 17 years.
The equity rout was particularly severe for hedge funds, which according to Goldman Sachs Group Inc.’s prime broker last week scooped up shares for the first time in a month, with the notional long buying reaching a one-year high. It also caused pain for options traders who had piled into bullish contracts in recent days.
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