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Stocks erase earlier gains after inflation data comes in lower than expected

Stocks ended lower on Tuesday to wipe out earlier gains as traders digested a new print on consumer inflation, which showed a slightly slower increase in prices last month.

The S&P 500, Dow and Nasdaq each dropped after opening in the green. The earlier move to the upside came after the Labor Department released its August consumer price index (CPI), which showed a still-heightened level of inflation across consumer goods and services, but a pullback from recent multi-year highs. Treasury yields declined across the curve, and the benchmark 10-year note’s yield hovered just over 1.3%.

The broadest measure of CPI grew 0.3% in August compared to July — coming in slightly below the 0.4% expected and 0.5% posted last month — and by 5.3% compared to August 2020. This year-over-year measure was in-line with estimates and slowed compared to July’s 5.4% pace, which had in turn represented the fastest annual growth rate since 2008.

The core measure of CPI, which strips out volatile food and energy prices, slowed more than expected to come in at 4.0% year-over-year in August after growing by 4.3% in July. Consensus economists were looking for CPI, excluding food and energy prices, to rise by 4.2%. 

This inflation data suggested that the persistent price pressures rippling across the recovering economy were beginning to slowly unwind, though the CPI reports remain elevated relative to pre-pandemic levels. Consumers have still taken note of recent inflationary pressures, and one-year inflation expectations jumped to a record high of 5.2% in August, according to a New York Federal Reserve report Monday.

The elevated CPI prints have served as another data point challenging some Federal Reserve policymakers’ views that inflation will be transitory and recede as the recovery matures. The ongoing price pressures have fueled debates over the timing of the central bank’s start to asset-purchase tapering and other monetary policy adjustments to stave off overheating.

“The modest slowing in the rate of growth for inflation should temper market and policymaker concerns somewhat, despite the fact that inflation is likely to remain on the higher side for a while and risks of sticky inflation remain,” Rick Rieder, BlackRock’s chief investment officer of global fixed income, wrote in an email Tuesday morning. 

“That said, core CPI has already overshot its pre-Covid trend and still many economists are forecasting the highest levels of inflation in a decade, after having seen disinflation for years,” he added. “The Federal Reserve may be declaring victory on its inflation mandate as a result of these recent price gains, but the U.S. consumer would appear to be less than thrilled about such ‘success.'”

An increasing number of economists have suggested the peak growth rates have already likely passed this year, with easy gains during the earlier stages of the reopening already made. These assessments have coincided with more cautious views on the U.S. equity market for the rest of the year, with slower economic growth likely translating to slower company earnings growth as well. Firms including Bank of America have recently slashed their price targets on the S&P 500 and suggested the index will end the year slightly lower than current levels. 

Others have maintained that any pullback could present a buying opportunity. 

“It’s been consistent since the pandemic has started, to buy on dips. I definitely don’t see that behavior changing any time soon,” Brian Vendig, MJP Wealth Advisors president, told Yahoo Finance Live on Monday. “I’d still say stay balanced toward equities, but be very selective in making sure that you’re picking the areas that can provide protection to margin, profitability growth, and also as a means to hedge off any unnecessary inflation.” 

4:03 p.m. ET: Stocks end lower as September selling resumes: Dow drops 292 points, or 0.8%

Here were the main moves in markets as of 4:03 p.m. ET:

  • S&P 500 (^GSPC): -25.60 (-0.57%) to 4,443.13

  • Dow (^DJI): -291.99 (-0.84%) to 34,577.64

  • Nasdaq (^IXIC): -67.82 (-0.45%) to 15,037.76

  • Crude (CL=F): -$0.08 (-0.11%) to $70.37 a barrel

  • Gold (GC=F): +$12.40 (+0.69%) to $1,806.80 per ounce

  • 10-year Treasury (^TNX): -4.7 bps to yield 1.2770%

1:59 p.m. ET: Apple reveals new iPhone 13, Apple Watch

Apple (AAPL) unveiled its latest iteration of the iPhone on Tuesday, announcing the launch of the iPhone 13, iPhone 13 mini, iPhone 13 Pro and iPhone 13 Pro Max. 

The models each include new A15 Bionic processors, which the company said generates 50% faster CPU compared to leading competitors. The new iPhone 13 starts at $699. 

The new iPhones also received updates to their dual-camera systems, with more light gathering and sensitivity than previous models. One of the biggest updates to the…

Read More: Stocks erase earlier gains after inflation data comes in lower than expected

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