Wall Street ends lower as hot inflation data, Fed comments heighten rate worries

MARKETS

NEW YORK - Stocks closed lower Tuesday as a hotter-than-expected inflation reading hardened expectations for a rate hike from the Federal Reserve next month and fueled concerns the central bank may be more aggressive in raising rates.

The Labor Department said the Consumer Price Index increased 0.4% last month, its third straight gain of 0.4% or more and above the 0.3% estimate of economists polled by Reuters, after advancing 0.6% in September.

The data came after Fed Governor Christopher Waller said the central bank should raise short-term borrowing costs in December even if data showed inflation cooled last month, and should consider an upsized half-point rate hike if the inflation picture worsens.

Markets are now completely pricing in a rate hike of at least 25 basis points at the Fed's December meeting, according to CME FedWatch, up from 84% on Monday, while expectations for a 50 basis point increase climbed to 11.8% after garnering no consideration at all in the prior session.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, surged nearly 18.9 basis points to 4.736% and was poised for its biggest daily gain since April 9, 2025, after President Donald Trump launched sweeping global tariffs.

The jump in yields has come even as oil prices have eased to two-month lows as officials downplay imminent military actions against Iran.

"What kind of has the market spooked a little bit is this idea of, 'Well, we were already pricing in a December hike ... but maybe it's not 25, maybe it's 50, and maybe the Fed's more worried about inflation than I am, so let's sell some stocks,'" said Jason Ware, chief investment officer at Albion Financial Group in Salt Lake City, Utah.

The Dow Jones Industrial Average fell 157.86 points, or 0.30%, to 52,231.89, the S&P 500 lost 29.01 points, or 0.38%, to 7,520.93 and the Nasdaq composite lost 187.26 points, or 0.74%, to 25,065.87.

The S&P 500 and Nasdaq had risen for two straight days, bouncing back from sharp losses last week sparked by concerns about the potential for government regulations slowing the AI build out.

But the S&P 500 technology sector dropped 1.4% on Tuesday as the worst-performing of the 11 major sectors, weighed down by another drop in Nvidia, which fell 5.4% and has tumbled 9.6% over the past two sessions. The company's stock reflects mounting concerns over CEO Jensen Huang's future at the chip company after it initiated an internal probe into spy claims involving Chinese businesswoman Alice Huang.

The CEO's relationship with Alice Huang facilitated the shipment of at least $7.5 billion worth of the company's chips through Chinese firms, the Information reported Tuesday.

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