Wall St falls as hot inflation data fuels rate-hike jitters

Wall Street’s main indexes retreated on Tuesday, pausing a two-day rebound in tech shares, after a hotter-than-expected October inflation reading reinforced fears that the Federal Reserve could keep interest rates higher for longer.

US consumer prices increased more than expected in October, rising 0.4 percent from the previous month, pushing the U.S. 2-year yield up 21.4 basis points for its biggest one-day jump since April last year.

“Markets had been pricing out some of the Fed tightening in recent weeks. Now it’s probably being forced to contemplate a bit more tightening,” said James McCann, senior economist at Edward Jones.

Traders are pricing in an almost 99 percent chance of a hike in December, according to the CME FedWatch tool.

Among rate-sensitive sectors, real estate and utilities declined over 0.5 percent each, while tech led losses with a 1.8 percent drop.

Nvidia slipped 6.3 percent, down for a second straight session, as investors grow concerned over CEO Jensen Huang’s future at the chip giant 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 on Tuesday.

Other chip makers were subdued, with the broader semiconductor index declining 1.9 percent after two consecutive sessions of gains, reflecting increasing volatility in the AI trade.

At 12:03 p.m. ET, the Dow Jones Industrial Average fell 340.80 points, or 0.65 percent, to 52,048.95, the S&P 500 lost 64.50 points, or 0.85 percent, to 7,485.44 and the Nasdaq Composite lost 321.44 points, or 1.27 percent, to 24,931.70

Nine of 11 major S&P 500 sectors were in negative territory.

Hawkish comments from the Fed’s policymakers underscored expectations for further policy tightening, with Lorie Logan saying the central bank may need at least two more quarter-point rate hikes to curb inflation, while Christopher Waller suggested a 25-basis-point hike next month and a larger increase if price pressures accelerate.

Anthropic test AI sentiment

Attention is also turning to Anthropic’s expected public listing later this month. The AI lab revealed that its initial public offering is expected to raise as much as $64.4 billion, giving the company a fully diluted valuation of up to $1.4 trillion.

A listing by Anthropic could also force other AI heavyweights to compete harder for investor dollars.

“The re-rating last week was an overreaction and investors will begin to pile back into AI over the next few quarters. But in the short term, it’s a coin toss,” said Eric Schiffer, chairman of The Patriarch Organization, a Los Angeles-based family office.

“There’s not going to be clarity on how governments handle data center approvals. So AI infrastructure stocks could feel some gravity in the short run.”

Neocloud firm CoreWeave is expected to report quarterly earnings after market close on Tuesday. Questions about the sustainability of the AI boom and the company’s debt burden have pressured the stock recently.

Shares of CoreWeave fell 2.1 percent, while those of its peer Nebius fell over 5 percent.

Declining issues outnumbered advancers by a 3.67-to-1 ratio on the NYSE, and by 3.04-to-1 ratio on the Nasdaq.

The S&P 500 posted 6 new 52-week highs and 3 new lows while the Nasdaq Composite recorded 40 new highs and 159 new lows.