S&P 500 Falls 1.1% as Hot Inflation Report Hits AI Stocks and Lifts Fed Hike Bets
The S&P 500 slid 1.1% on Wednesday after September inflation came in hotter than expected, pushing bond yields up and hammering AI-linked stocks.
Why the S&P 500 fell
U.S. stocks sank on Wednesday after a government report showed inflation accelerating faster than forecast. That reignited fears the Federal Reserve will keep raising interest rates.
The S&P 500 lost 1.1%. The Dow Jones Industrial Average slipped just 48 points, or 0.1%. The Nasdaq composite fell 1.9%, led lower by artificial-intelligence names. The Russell 2000 index of small companies also dropped 1.9%.
What the inflation report showed
Consumer prices rose 0.6% in September from August, according to the Bureau of Labor Statistics. The annual rate climbed to 3.7% from 3.4% in August.
Core inflation, which strips out food and energy, rose 0.3% on the month and 2.6% on the year. Economists had expected 0.2% and 2.5%.
Gas prices jumped 9.1% in September and made up more than half of the monthly increase. CNN reported the pressure was broad, with used cars, airfares, apparel and medical care also rising. Fuel costs have been pushed up by the war with Iran, and Brent crude edged up 0.4% to $106.06 a barrel.
Bonds and the Fed
The 10-year Treasury yield briefly jumped above 5.32% from under 5.17% just before the report, then gave back much of the gain. Shorter-term yields rose even more at first as traders bet on more rate hikes, though they also eased later in the day.
The Fed recently raised its key rate for the first time in three years. According to CME Group data, traders now put the odds of another hike at its next meeting, in two weeks, at nearly 35%, up from 22% a day earlier. Reuters said the inflation figures also lifted the dollar to a fresh 18-month high.
AI stocks take the brunt
Higher borrowing costs could make it harder for companies to raise money for data centers and AI chips. Nvidia fell 3.2%, Broadcom 3.1% and Advanced Micro Devices 5.7%. Oracle sank 8.8%, and CoreWeave tumbled 15.5%, its worst day since February.
Reuters said eight of the 11 S&P 500 sectors fell, with tech down 2.6%. The chip index lost 4.2%, its sixth straight decline and longest losing streak in nearly two years. Bank of America dropped 4.8% after reporting weaker profit and revenue for the summer.
Not everything fell. Reuters noted UnitedHealth, Moderna and Bristol-Myers Squibb rose 4% to 5%.
What it means for you
Higher yields tend to weigh on stock prices, and the main offset is bigger company profits, which analysts are expecting. The flip side, AP noted, is that companies that miss growth targets are likely to be punished.
If you hold index funds, expect more swings around upcoming earnings reports and the Fed meeting in two weeks. Vanguard economist Adam Schickling said inflation should slow eventually but that "patience will be required."
Also read Social Security COLA Will Be 3.6% in 2027, Adding $75 a Month on Average
Quick answers
Is the S&P 500 still near its record?
It is below its all-time high, which it set six days before Wednesday's close. It has lost ground in five of those six sessions.
Why are AI stocks falling more than the rest of the market?
Rising yields make it costlier to finance data centers and chips. Reuters also pointed to souring investor sentiment on AI-related bonds, with some trading at record lows.
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