Explained – Three factors why Dow Jones, Nasdaq fell on Tuesday
Benchmark indices saw some profit booking on Tuesday, November 11, after Monday’s sharp upmove as three important factors soured sentiments on Wall Street. The indices, however, recovered from the lows of the day.
The Dow Jones ended 160 points lower on Tuesday. At the day’s low, the index was down 350 points. The S&P 500, Nasdaq Composite, also overturned some of their losses of the day to end with losses of 0.4% and 0.7% respectively on Tuesday.
Three important factors contributed to the swinging sentiments on Wall Street on Tuesday. Here’s a look:
A Hotter-Than-Expected Inflation Print
October’s Consumer Price Inflation (CPI) data came in higher than what street economists were anticipating, as a rise in shelter costs, coupled with fuel and gasoline, added to the rise in figures.
October CPI increased by 0.4% on a month-on-month (MoM) basis, compared to the estimate of 0.3%. Adjusted for fuel and food costs, the core CPI figure also increased by 0.3% from last month, higher than the 0.2% estimate.
The year-on-year figures were not delivered this month by the Bureau of Labor Statistics (BLS) as data was not collected for the same months last year due to the government shutdown.
Fed Officials Increase Rate Hike Worries
Multiple Federal Reserve officials spoke about how rate hikes would still be needed to bring inflation down.
Speaking at an event in London just before the release of the inflation data, Fed Governor Christopher Waller said more rate hikes would be needed to bring inflation down, which is still “too high.”
During his speech, Waller also kept the door open for a 50 basis points rate hike, if inflation pressures persist, to “protect the central bank’s credibility.”
Waller’s sentiments were echoed by Dallas Fed Chief Lorie Logan, who said that at least two 25 basis points rate hikes would be needed to address the inflation concerns and that officials may have to move to raise rates faster than they had earlier planned.
Kansas City Fed Chief Jeff Schmid said that rates last year were not restrictive enough and even today, are not having an impact on the economic growth.
Fed Governor Michelle Bowman warned that in case the AI bets do not pan out as envisaged, there could be a sharp correction in stock valuations. She also said that with inflation pressures persisting, she could support the case for a rate hike in December.
With all of these statements, the probability of the Fed raising rates by 25 basis points in December has increased to 91%, with the remaining 9% factoring in a 50 basis points hike.
Nvidia Continues To Sulk
Shares of Nvidia are now down 10% in two sessions after the Jensen Huang scandal came to light. The stock fell another 6% on Tuesday, following Monday’s 4.5% drop, and has now declined in four out of the last five sessions, pressuring the S&P 500 and Nasdaq.
The tech-heavy indices had surged on Monday despite Nvidia’s fall as most of the other semiconductor / chip companies gained between 6% to 11%, more than offsetting the pressure in Nvidia.
Elsewhere, as an aftermath of the inflation print, the 10-year bond yield surged back to the 5% mark, while the crude oil prices, having slipped below the $90 a barrel mark during the day on Tuesday, are back at $92 a barrel.