U.S. equities ended Wednesday's session in the red as a stronger-than-anticipated inflation report fueled speculation that the Federal Reserve may need to resume its tightening cycle. The technology-heavy Nasdaq Composite led the decline, shedding 1.85% to close at 26,701.48, while the S&P 500 fell 1.08% to 7,721.49. The Dow Jones Industrial Average managed a more modest loss of 0.09%, or 45.23 points, to 51,624.87, helped by gains in healthcare names.
The latest consumer price index (CPI) showed a 0.6% month-over-month increase in September, pushing the annual rate to 3.7%, above the 3.6% that economists had projected. Core CPI, which strips out volatile food and energy components, rose 0.3% on the month and 2.6% year-over-year, both exceeding consensus estimates of 0.2% and 2.5%, respectively. Higher gasoline prices contributed more than half of the monthly headline gain, but the report also indicated that price pressures were broadening beyond energy.
Following the data release, traders quickly adjusted their expectations for Federal Reserve policy. According to CME's FedWatch tool, the probability of a rate hike at the October meeting jumped to 32.7%, up from 22% just a day earlier. The prospect of elevated borrowing costs weighed heavily on equities, particularly those with valuations tied to future growth and easy access to capital.
Despite Wednesday's pullback, the S&P 500 remains more than 12% higher for 2026, having reached a record high just last week. However, the market's breadth has been narrow: the median stock in the index has gained only 4% for the year, and more than 200 components are trading in negative territory.
AI and semiconductor stocks extend losses
Technology shares were the primary drag on the market as investors reassessed the sustainability of artificial intelligence investments in a higher-for-longer rate environment. Concerns about debt-financed AI infrastructure expansion added to the selling pressure.
Oracle shares tumbled approximately 9%, while CoreWeave plunged more than 16%. Nebius also declined as investors pared exposure to AI infrastructure companies that are sensitive to rising borrowing costs. Chipmakers continued their recent slide, with Advanced Micro Devices falling 5%, and Intel and SanDisk each dropping 4%. Micron Technology lost 3%.
The Philadelphia Semiconductor Index fell for a sixth consecutive session, its longest losing streak since May 2025. Dell and Hewlett Packard Enterprise also declined after Barclays downgraded both AI server manufacturers to Equal Weight from Overweight.
Bank stocks slide despite mixed earnings
Financial shares also contributed to the market's decline following quarterly results from major U.S. lenders. Bank of America dropped 5% after its third-quarter revenue missed expectations, and the bank set aside more than $1.2 billion for regulatory penalties related to failures in detecting suspicious transactions. Morgan Stanley fell nearly 4% even though its quarterly results beat forecasts, supported by stronger equity trading revenue.
The S&P 500 Banks Index slipped to its lowest level in more than four months, reflecting broad pressure on the sector. In other corporate news, Bending Spoons shares rallied after Berkshire Hathaway invested an additional $330 million in the Italian technology company, bringing its total investment to $930 million and its stake to approximately 4%.
This article is for informational purposes only and does not constitute financial advice.
