Investors appeared to reassess the risks of Kamala Harris winning the presidential election on Wednesday, with major stock indexes dropping sharply the morning after she debated Donald Trump.
The Dow Jones Industrial Average fell more than 550 points, or 1.4%, while the S&P 500 lost 1.1% and the Nasdaq Composite Index lost 0.70%.
Harris has said she would seek to raise a wide range of taxes, including on corporate profits, unrealized capital gains and the income of the wealthy. Many investors and Wall Street analysts believe these taxes would weigh heavily on stock prices.
Adding to the market's outcry on Wednesday was the report that the Consumer Price Index showed that core inflation, which excludes food and energy prices, unexpectedly rose in August. Core prices rose 0.3% in August, beating expectations of a 0.2% increase. Core prices rose 0.2% in July.
The inflation report has forced traders to rethink how much the Fed will cut interest rates next week and over the coming months. Markets had been expecting equal odds of the Fed announcing either a 50 basis point or a 25 basis point rate cut. After the inflation report, the chances of a larger rate cut dropped significantly.
There are plenty of signs that the economy is weakening, and Wall Street is once again worried that a recession is looming if the Fed doesn't rescue the economy with enough interest rate cuts. The market's view that the Fed will cut rates at each meeting between now and late next year is effectively a vote of no confidence in the Biden-Harris economy and a prediction that the economy will weaken even further.
With Tuesday's debate expected to go in Harris' favor, investors are worried that her tough tax proposals could slow the economy, reduce corporate profits and drive down stock prices.
