Stock futures are flat after major averages suffer worst day since June 2020

Stock futures were flat in overnight trading Tuesday after another hot inflation reading sent the major averages tumbling to their worst day since June 2020 and dampened investors’ expectations of a less hawkish Federal Reserve.

Futures tied to the Dow Industrial Average added 38 points, or 0.12%. S&P 500 futures inched 0.1% higher and Nasdaq 100 futures were flat.

During Tuesday’s regular trading session the Dow sank 1,276.37 points, or 3.94%, to close at 31,104.97, while the S&P 500 slid 4.32% to 3,932.69. The Nasdaq Composite toppled 5.16% to 11,633.57. All the major averages broke a four-day winning streak.

The market moves came after August’s consumer price index report showed headline inflation rose 0.1% on a monthly basis despite a drop in gas prices.

The hot inflation report left questions over whether stocks could go back to their June lows or fall even further. It also spurred some fears that the Federal Reserve could potentially hike even higher than the 75 basis points markets are pricing in.

“It caught the market off guard,” said LPL Financial’s Quincy Krosby. “The market had been expecting at least that we had leveled off — perhaps not moving downward but certainly not climbing higher. It was the wrong direction and the concern, of course, is always translated into what does this mean for the Fed.”

All 30 Dow stocks and S&P 500 sectors finished the session lower, led to the downside by communications services. The sector fell 5.6% and finished its worst day since February, dragged down by shares of big technology names like Netflix and Meta Platforms, which tumbled about 7.8% and 9.4%, respectively.

A reading of the producer price index is due out Wednesday morning and could offer further clues into the state of inflation before the Fed’s rate-hike meeting next week.