S&P 500 Falls About 1% and Nasdaq Nearly 2% After September CPI, as Rate-Hike Odds Rise

Hours after the Labor Department put September inflation at 3.7%, Wall Street sold off, and by 1:41 p.m. ET today, Oct. 14, the damage was concentrated in technology.

Yahoo Finance's tickers showed the Nasdaq Composite down 1.94% at 26,676.62, the S&P 500 down 1.28% and the Dow down 0.44%. Other midday tallies were a bit milder. CNBC had the S&P 500 off 1.1% and the Nasdaq off 1.7%, with the Dow down 166 points, or 0.3%.

The Dow held up better because of gains in healthcare names such as UnitedHealth and Amgen.

Fed hike odds move

The Fed lifted its upper target rate to 4% from 3.75% in September. Most traders had expected the next move in December. After the CPI report, they raised the odds of a hike this month, according to 24/7 Wall St.

Philip Blancato, chief market strategist at Osaic, told CNBC the report "puts the Federal Reserve very much in play for December." He said he expects core CPI near 3% next year because of higher oil prices.

The two-year Treasury yield was up about 3 basis points at 4.823% in afternoon trading.

A Fed governor is already pushing back on the idea of a quick follow-up. Vice Chair for Supervision Michelle Bowman said at the IMF-World Bank meetings in Bangkok that the Fed has room to assess the effect of its September increase. "I don't feel any urgency for taking further action at this point," she said. "We really need to take some time and understand how things will evolve."

Blancato is also relaxed about the market. He told CNBC he is not "overly concerned" about equities or bonds, calls the latest inflation rise "transitory," and says "a lot of this has already been priced in."

AI and chip stocks lead the losses

Inflation was only part of the day's selling. CNBC reports investors are also worried about tech companies outside the "Magnificent Seven" using heavy debt to fund the AI buildout.

CoreWeave shares fell more than 15%. Oracle dropped about 8%. Advanced Micro Devices fell 3%, Micron 1%, and Intel and Sandisk 2% each.

The chip sell-off predates today. The PHLX chip index has fallen more than 8% in five sessions, according to 24/7 Wall St. Micron lost 3.6% on Tuesday on reports of technology advances at Chinese memory maker CXMT. South Korea's KOSPI index has dropped 12% over five days, per Yahoo Finance.

ASML posted record third-quarter sales today and raised its full-year outlook on AI demand, and chip stocks still fell. Taiwan Semiconductor reports earnings Thursday, Oct. 15.

Banks split

Bank of America shares fell 7% by CNBC's count and as much as 9% intraday by Yahoo Finance's. The bank reported lower quarterly profit a day after regulators hit it with more than $1.2 billion in federal penalties. Regulators said it failed to report more than $5 billion in "suspicious" transactions.

Morgan Stanley beat expectations on strong equity trading and investment banking, though its stock traded nearly 2% lower. BlackRock rose after beating third-quarter estimates.

Energy keeps the pressure on

Gasoline averages $4.34 a gallon, per AAA, against $3.08 a year ago. GasBuddy says today was the 158th straight day above $4, breaking the 2022 record of 157.

Andy Lipow of Lipow Oil Associates told Yahoo Finance gas will likely stay above $4 for months "unless there is some resolution between the USA and Iran that results in the reopening of the Strait of Hormuz."

Brent crude is above $105 a barrel as Houthis continue to bomb Saudi energy facilities. West Texas Intermediate is up about 1% near $95.

Last week President Trump said he would temporarily ease restrictions on Russian diesel exports. CNBC says analysts do not expect that to do much for fuel prices facing truckers and farmers.

The political clock

The Hill notes the inflation print gives Republicans no relief as they try to hold both chambers of Congress. Trump is campaigning today in Bullhead City, Arizona, at 4 p.m. EDT and Kalispell, Montana, at 8:15 p.m.

The S&P 500 is still up about 14% year to date, according to 24/7 Wall St., but the median stock is up less than 5%. The forward price-to-earnings ratio is under 19, the lowest since 2023, and analysts expect third-quarter earnings growth above 30%.

The open question is whether the Fed acts before December. Fed policymakers have not announced a decision for this month, and Bowman's comments point toward waiting. The rate path will turn on oil and on whether the Strait of Hormuz reopens.