Dow falls 500 points to 4-week low after mixed inflation report

The Dow fell as much as 740 points, or nearly 2%, by mid-morning, hitting its lowest since Aug. 14 and heading for its second-biggest daily loss of 2024 on a point and percentage basis. Only the mini-crash of Aug. 5 was worse, when the index lost nearly 3%. By 11:30 a.m. EDT, losses moderated to 1.3%, or 530 points.

The plunge came as investors digested the consumer price index inflation report for August, which included the best inflation rate since February 2021 but spooked financial markets as the arguably more important core inflation indicator rose slightly more than expected from the previous month.

That left traders increasingly confident that the Fed would cut rates by 25 basis points rather than 50 at its meeting next week – the probability of a 50 basis point cut fell to 17% from 34% on Wednesday, according to the CME FedWatch tool – an unwelcome development as lower rates boost stock prices as cheaper borrowing costs increase profit margins.

The losses were smaller for the other major US stock indices, the leading S&P 500 index (down 1.1 percent on Wednesday) and the technology-focused Nasdaq (down 0.6 percent). The reason for the gap is that the Dow of 30 companies is disproportionately exposed to interest rate-sensitive stocks such as the health insurer UnitedHealth and the property insurer Travelers, both of which fell by around 3 percent.