US equities ended Tuesday in the red as a hotter-than-expected inflation reading reinforced the case for additional Federal Reserve policy tightening. The Dow Jones Industrial Average shed 161.95 points, or 0.31%, to settle at 52,227.80, while the S&P 500 slipped 0.38% to 7,521.48. The Nasdaq Composite underperformed, losing 0.74% to close at 25,067.23.
The Labor Department reported that the Consumer Price Index (CPI) advanced 0.4% in October, exceeding the 0.3% gain economists had projected. This marked the third consecutive month with at least a 0.4% increase, following a 0.6% rise in September. Core CPI, which strips out volatile food and energy components, also climbed 0.3% against a 0.2% forecast.
Rate hike expectations firm
The inflation data solidified market pricing for a quarter-point rate increase at the Fed's December meeting. According to CME FedWatch, traders now fully price in at least a 25-basis-point move, up from an 84% probability on Monday. The odds of a larger 50-basis-point hike also rose to 11.8%, a level that had not been considered in the prior session.
Fed Governor Christopher Waller added to the hawkish tone, suggesting that a December increase was likely and that policymakers should consider a more aggressive move if inflation does not cool. Dallas Fed President Lorie Logan said the central bank needs at least two additional quarter-point hikes and indicated they may need to occur promptly. Kansas City Fed President Jeff Schmid described the current policy rate as fairly accommodative, while Fed Vice Chair of Supervision Michelle Bowman reiterated that inflation remains the top priority but stopped short of endorsing further hikes.
Treasury yields spiked following the data, with the two-year note climbing nearly 20 basis points and the 10-year yield moving back above 5%.
Tech shares lead decline
Technology stocks were the biggest drag on the market, with the S&P 500 technology sector falling more than 1%, the worst performer among the 11 major groups. Nvidia dropped 6%, extending its two-session slide to roughly 10%. The chipmaker remains under pressure amid reports that CEO Jensen Huang's relationship with Chinese businesswoman Alice Huang may have facilitated at least $7.5 billion in chip shipments to Chinese firms. Nvidia has launched an internal investigation into the allegations.
The broader Philadelphia semiconductor index posted more moderate losses after two days of gains, reflecting ongoing volatility in the AI trade. The decline came after the S&P 500 and Nasdaq had advanced for two consecutive sessions, recovering from earlier losses tied to concerns about potential regulations slowing AI infrastructure development.
Anthropic IPO adds uncertainty
Investors also weighed the potential impact of Anthropic's upcoming initial public offering. The AI company said its offering could raise as much as $64.4 billion, valuing it at up to $1.4 trillion on a fully diluted basis. The listing could intensify competition among major AI companies for investor capital and prompt portfolio repositioning as valuations are reassessed.
Meanwhile, CoreWeave and its peer Nebius ended lower. CoreWeave shares gained after market close after reporting results that met Wall Street's expectations. CoreWeave shares have fallen about 33% this year, reflecting concerns about financing requirements and the outlook for the AI boom.
This article is for informational purposes only and does not constitute financial advice.
