September’s hotter-than-expected CPI report totally reignited those inflation fears fr especially since the 3.7% annual increase was way bigger than the 3.4% in August. Core CPI also climbed to 2.6% year over year which beat expectations and rose from 2.4% the month before. Gasoline surged 9.1% in September alone while shelter airline fares medical care apparel and other spots moved higher too 💀.
This is what the pros call sticky inflation where price pressures just refuse to fade even after ages of tight monetary policy 🖤. More importantly they are spreading past single volatile spots like energy 🔥.
Why Markets Are Crashing So Hard 📉
Analysts at the Kobeissi Letter noted that US inflation has stayed above the Federal Reserve’s 2% target for 67 straight months. It was last below that level back during the COVID-19 lockdown in January 2021. The KL also highlighted sharp annual jumps in several areas fuel oil up 74.2% gasoline up 34.2% airline fares up 22.4% car repairs up 5.8% hospital services up 5.6% and electricity up 4.4% here and here.
Persistent inflation creates a tough scene for financial markets because it leaves the central bank less room to cut rates and can even push them higher like at the September FOMC meeting 😭.
Higher rates boost returns on safe stuff like government debt while raising borrowing costs everywhere. Highly valued growth stocks get hit hard especially since future earnings get discounted more and debt-funded growth turns expensive ✨.
The reaction yesterday said it all the S&P 500 dropped over 1% the Nasdaq fell almost 2% and tech plus AI-linked names saw a brutal sell-off. The Kobeissi Letter estimated roughly $800 billion in S&P 500 market cap vanished during the session making it the worst day since late July 👀.
Asian markets also fell sharply with South Korea’s KOSPI down 8% 🧠.
Bitcoin Feeling the Pain Too 😈
Bitcoin wasn’t spared from the broader crash. The asset plunged to a monthly low of $80,200 earlier today after reacting negatively right after the CPI drop. The worry is straightforward hotter more persistent inflation means higher-for-longer rates plus tighter liquidity both of which crush risk-on assets.
Expectations for another rate hike at the upcoming October meeting jumped after the CPI data dropped. That shift hits BTC hard because it doesn’t yield anything. When Treasury yields rise and cash looks better investors want to ditch volatile stuff 💸.
After rejection at $87,000 last week bitcoin is fighting to stay above $80,000 but the hostile macro vibe signals more trouble sticky inflation elevated rates falling equities ETF outflows and leverage are all piling on at once.
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