(Updates with index/price moves, macroeconomic data, and company/geopolitical news from the first paragraph.)
US equity indexes fell after a hotter-than-expected inflation report boosted the odds of three interest-rate increases by Q1 and sent mega-cap technology names sharply lower.
The Nasdaq Composite dropped 1.8% to 26,714.8, the S&P 500 slid 1.2% to 7,712.5, and the Dow Jones Industrial Average declined 0.4% to 51,472.5 after midday Wednesday.
The consumer price index jumped 0.6% in September, as expected in a Bloomberg-compiled poll, from 0.4% in August, according to the Bureau of Labor Statistics. Core CPI climbed 0.3%, above the 0.2% consensus but in line with August. Overall and core CPI year-over-year accelerated to 3.7% and 2.6%, respectively, from 3.4% and 2.4%, and beat market expectations.
A 9.1% month-over-month surge in gasoline dominated the headline rate, as expected, according to a note from Jefferies. Several upside surprises in core inflation imply that higher energy prices are passing through to non-energy goods.
"Several policymakers have said that they don't necessarily need to rush with a rate hike as soon as October, but this data provides a stronger argument for pushing to higher rates," Thomas Simons, Jefferies chief US economist, said in the note. "Our base case is now, once again, that the Fed will raise rates 25 bps in both October and December, with a bias to keep going in 2027."
The CME FedWatch tool showed that the probability of the Federal Reserve lifting its target rate by 25 basis points in October almost doubled to 44% on Wednesday afternoon. The market now sees a 39% likelihood that the Fed will raise its target rate by another 25 basis points in December, versus 19% a day ago. It assigns a 39% probability of another move of the same magnitude in March to the 4.5% to 4.75% range, up from 30% a day earlier, implying three rate increases by the end of Q1.
Most US Treasury yields jumped, with the two-year rising 3.2 basis points to 4.83%.
All sectors except healthcare, consumer staples and energy retreated after midday. Technology, consumer discretionary and industrials led the decliners. The PHLX Semiconductor (SOX) slumped 3.9% after midday, its sixth consecutive day of declines adding up to more than 10% cumulative.
Among stocks with market capitalization exceeding $200 billion, eight of the bottom 10 were technology names, according to data compiled by Finviz. Dell Technologies (DELL) led decliners, down 11%. Bank of America (BAC) and Morgan Stanley (MS), the two banking giants that reported quarterly results Wednesday before the bell, were among the worst performers in this mega-cap category.
Bank of America reported an unexpected year-over-year drop in Q3 earnings as a regulatory settlement charge weighed while revenue missed consensus. Shares slumped 6%. Morgan Stanley's shares slid 3.6% even after the investment bank reported higher Q3 earnings and revenue.
In geopolitical news, the Iran-aligned militant group Houthis vowed to continue attacking Saudi Arabian airports and oil facilities after causing extensive damage to the headquarters of oil giant Saudi Aramco, Reuters reported. Meanwhile, Iran is deploying new tactics to target ships sailing through the Strait of Hormuz as it seeks to keep oil prices high and influence the US midterm elections, two senior Iranian officials told Reuters.
The front-month US West Texas Intermediate crude oil contract advanced 1.5% to $95.55 per barrel, and global benchmark Brent climbed 0.8% to $106.51 per barrel.
Gold futures sank 1.78% to $4,107.40, and silver futures plunged 6.1% to $55.91.
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