Dow drops 600 points as inflation concerns rattle investors

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The US stock market is taking it on the chin again Tuesday, plummeting on worries about sustained high inflation that pushed bond yields higher. The debt ceiling debate raging in Washington doesn’t help market sentiment either.

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The Dow dropped some 600 points at its low-point, and was trading down around 400 points, or 1.2% in the mid-afternoon. The S&P 500 was down 1.5% and had also recovered from its low point for the day. Tech stocks are leading the losses across the board, pulling the tech-focused Nasdaq Composite down 2.2% in the early afternoon.

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“It’s a bit of a tapering tantrum,” said Ed Yardeni, president of Yardeni Research.

The 10-year Treasury bond yield, which is sensitive to inflation expectations, rose to 1.53%. Bond yields and prices move in opposition to each other.

Remarks about inflation from Federal Reserve Chairman Jerome Powell spooked investors this morning and pushed bond yields higher.

“Inflation is elevated and will likely remain so in coming months before moderating,” Powell said in prepared remarks before the Senate Committee on Banking, Housing and Urban Affairs.

“The supply-side restrictions that are so much at the heart of the inflation we’re seeing … in some cases they’ve gotten worse,” Powell told lawmakers at the hearing.

Rising levels of inflation over the summer convinced economists and investors that the Fed would soon tap the brakes on its enormous monetary stimulus program. Last week, Powell said the central bank was nearly there and that “a moderation in the pace of [monthly] asset purchases may soon be warranted.”

The stock market reacted little at the time, as the comments met expectations, but Tuesday’s selloff might still be about tapering, the Fed’s process of cutting back on its monthly purchases.

Debt ceiling debate

Powell and Treasury Secretary Janet Yellen testified before Congress Tuesday regarding the pandemic and the CARES Act.

Yellen told lawmakers that the government will run out of cash and face extraordinary measures by October 18 if Congress doesn’t raise the debt ceiling.

“Deficits have been run under both Democratic and Republican administrations. It’s important to recognize that,” Yellen said. “And that means paying the bills for those deficits is a shared responsibility and it should not be the responsibility of any one party.”

While policy makers are busy in Washington, American consumers are growing less confident. The Conference Board’s consumer confidence index declined for the third month in a row in September “as the spread of the Delta variant continued to dampen optimism,” said Lynn Franco, senior director of economic indicators at the Conference Board.

It’s not just stocks, bonds and the economy making investors uneasy.

There’s also a rout in the energy market, where prices are soaring. One of the issues is a shortage of natural gas triggered by low stockpiles and a jump in demand as production activity ramps up from the Covid-19 lull. Natural gas futures for October were up 2.4% around midday.

— CNN’s Matt Egan and Julia Horowitz contributed to this report.

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