Nasdaq Falls 1.9 Percent as Hot Inflation Sparks Worst Selloff Since July

Wall Street closed sharply lower on Wednesday, Oct. 14, after September inflation came in hotter than economists expected and revived the case for more Federal Reserve rate hikes.

The Nasdaq Composite fell 511.51 points, or 1.88 percent, to 26,692.87. The S&P 500 lost 86.51 points, or 1.11 percent, to 7,718.94. The Dow Jones Industrial Average fell 48.62 points, or 0.09 percent, to 51,621.48. One market wrap called it the sharpest broad decline since July.

The inflation print that moved the day

The consumer price index rose 3.7 percent from a year earlier in September, up from 3.4 percent in August and above the 3.6 percent economists had expected. Core prices, which strip out food and energy, rose 2.6 percent, up from 2.4 percent and above the 2.5 percent consensus. Higher gasoline prices fed the headline gain.

Bond markets reacted fast. The 10 year Treasury yield jumped to about 5.33 percent after the data, its highest in this cycle, before easing to about 5.19 percent late in the session. Rate futures moved too. Traders put the odds of a hike at the Fed meeting in two weeks at 37 percent, up from 22 percent before the report, and the odds of at least one hike by December at 91 percent.

Tech and banks take the hit

Selling hit artificial intelligence and chip stocks hardest, extending a slide that began earlier in the week. Bank shares added to the drag. Bank of America fell after soft third quarter results and a large fine weighed on the stock, a weak spot in an earnings season that opened with mixed bank numbers on Tuesday.

Why it matters

Higher yields raise the cost of mortgages, car loans, and business borrowing, and they hit the growth stocks that have carried this market. Inflation is no longer falling toward target on a smooth path, and Wednesday's data suggests the last stretch could stay rough.

What happens next

Investors get the September producer price index on Thursday, Oct. 15, the wholesale counterpart to Wednesday's report. After that, the focus shifts to the Fed meeting later this month and to the rest of bank earnings.

The move also lands on top of a soft start to earnings season. On Tuesday the Dow fell and bank results failed to lift the market, with chip stocks down for a second day. Wednesday's inflation report turned a cautious week into a selloff, and it leaves investors with a simple problem: the economy is still growing, prices are still rising too fast, and the cheap money trade has no support from the data.