US stocks fall further from their record as inflation gets worse

NEW YORK (AP) — Worries about worsening inflation are weighing on the U.S. stock market Wednesday and pulling Wall Street further from its record.

The S&P 500 fell 0.6% and was on track for a fifth loss in the six days since setting its all-time high. The Dow Jones Industrial Average was up 2 points, or less than 0.1%, as of 10:30 a.m. Eastern time, and the Nasdaq composite was 0.9% lower.

Stocks felt pressure from rising yields in the bond market, where worries grew after a report said U.S. consumers had to pay prices for fuel, food and other costs of living last month that were 3.7% higher than a year earlier. That means inflation accelerated from its 3.4% rate in August and was worse than the 3.6% that economists expected.

Inflation has remained more painful than anyone would like since the economy launched out of the crevasse created by the COVID-19 pandemic. It’s breathed in new life recently because of jumps in fuel prices caused by the war with Iran, and the price for a barrel of Brent crude added 0.3% Wednesday to $105.98.

That has built on signals that the U.S. economy is still growing, longstanding worries about fast-growing debt loads for governments and other factors to send yields to their highest levels in years or even decades in bond markets worldwide.

The centerpiece of the U.S. bond market, the 10-year Treasury, saw its yield jump to 5.26% from less than 5.17% just before the inflation report’s release. That’s a notable move for the bond market.

Yields on shorter-term Treasurys leaped more as traders ratcheted up their expectations for coming hikes to interest rates by the Federal Reserve.

The Fed last month raised the interest rate that it controls, which affects very short-term loans, for the first time in three years in hopes of reining in inflation. Higher rates do that by making it more expensive for everyone to borrow money and slowing the overall economy.

Traders now see nearly a 44% chance that the Fed will raise the federal funds rate at its next meeting in two weeks, up from the 22% probability seen just a day earlier, according to data from CME Group.

“The consumer price index was a little hotter than expected, but not scorching hot,” said Brian Jacobsen, chief economic strategist at Annex Wealth Management. “It was just hot enough to keep traders on edge.”

Higher rates push downward on prices for stocks, and the main way companies can offset that is to deliver bigger profits. That’s exactly what analysts are expecting, and it’s how the S&P 500 has been able to set records despite the many challenges weighing on Wall Street.

BlackRock rose 1.8% after the investment company reported stronger profit and revenue for the summer than analysts expected. Customers poured a net $205 billion into BlackRock’s funds, including iShares exchange-traded funds, from July through September to bring its total assets under management to $15.5 trillion. BlackRock makes money by charging fees on those dollars.

But the high expectations for profit growth also mean companies will likely get punished if they fall short of targets, which is what several other financial companies did Wednesday morning.

Bank of America dropped 7.5% after reporting weaker profit and revenue for the third quarter than analysts expected. The profit would have fallen short even after ignoring the $1.2 billion in fines that the U.S. Treasury Department announced late Tuesday for alleged violations of anti-money laundering and sanctions laws.

State Street sank 8.2% after reporting weaker revenue for the latest quarter than analysts expected, even though its profit was slightly above their forecasts.

The higher yields in the bond market, meanwhile, hurt some stocks in particular.

Homebuilders are finding potential customers turned off by mortgage rates at their highest level in nearly three years. Their stocks sank further on Wednesday, including drops of 3.9% for Lennar, 3.5% for PulteGroup and 3.4% for D.R. Horton.

Stocks that pay relatively big dividends also struggled because higher yields on bonds can draw away potential buyers looking for steady income. Utility stocks in the S&P 500 fell 1.2% overall.

In stock markets abroad, indexes ticked higher in Europe following a weaker finish in Asia. Indexes rose 0.4% in Paris and fell 0.9% in Shanghai for two of the world’s bigger moves.

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AP Business Writers Yuri Kageyama and Michelle Chapman contributed to this report.