By Chuck Mikolajczak and Niket Nishant
NEW YORK, Nov 10 (Reuters) – U.S. stocks closed lower on Tuesday as higher-than-expected inflation reinforced expectations of a Federal Reserve rate hike next month and fueled concerns that the central bank could be more aggressive in its rate hikes.
The Labor Department said the consumer price index rose 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 rising 0.6% in September.
The data was released after Fed Governor Christopher Waller said the central bank should raise short-term borrowing costs in December, even though data showed inflation slowing last month, and that it should consider a half-point rate hike if the inflation situation worsens.
Markets are now fully 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 jumped to 11.8% after receiving no consideration in the previous session.
The 2-year U.S. Treasury yield, which typically moves in line with Fed interest rate expectations, jumped nearly 18.9 basis points to 4.736% and is poised for its biggest daily gain since April 9, 2025, after U.S. President Donald Trump launched draconian global tariffs.
The rise in yields came even as oil prices fell to a two-month low as U.S. officials downplayed any imminent military action against Iran.
“What spooked the market a little bit was this idea of, ‘Well, we already predicted a hike in December…but maybe it’s not 25, maybe 50, and maybe the Fed is 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.
“From our perspective, it’s irrational. What pushed the CPI higher over the last six months, and what made the Fed a little more concerned and therefore started raising rates again, was because we saw oil, energy and diesel moving up in terms of inflation. If oil now goes the other way… everything will stabilize.”
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.
TECHNOLOGY SECTOR UNDER PRESSURE
The S&P 500 and Nasdaq have risen for two straight days, rebounding from sharp losses last week triggered by concerns about the potential for government regulations slowing the development of AI.
But the S&P 500 technology sector fell 1.4% on Tuesday, being the worst performer of the 11 major sectors, weighed down by a further decline in Nvidia, which fell 5.4% and has fallen 9.6% over the past two sessions. The company’s actions reflect growing concerns about CEO Jensen Huang’s future at the chip company, after it launched an internal investigation into espionage allegations involving Chinese businesswoman Alice Huang.
The CEO’s relationship with Alice Huang facilitated the shipment of at least $7.5 billion of the company’s chips through Chinese companies, the Information newspaper reported Tuesday.
But declines in the broader Philadelphia semiconductor index were more muted, down 0.4%, after two straight sessions of gains, as AI trading volatility increased.
Besides Waller, several other Fed officials speaking Tuesday also struck a hawkish tone.
Dallas Federal Reserve President Lorie Logan said the Fed needs to make at least two more quarter-point interest rate increases to reduce inflation, and may have to do so quickly, while Kansas City Federal Reserve President Jeff Schmid said he thinks the current policy rate is “fairly accommodative.”
Federal Reserve Vice Chair of Surveillance Michelle Bowman, however, stopped short of calling for an interest rate hike, but acknowledged that inflation was the central bank’s top priority.
ANTHROPIC IPO IS BIG
Investors are also gearing up for Anthropic’s expected public listing later this month. The AI Lab revealed that its IPO is expected to raise up to $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 more for investor dollars and lead to portfolio repositioning by investors.
Shares of Neocloud company CoreWeave closed down 0.5% but were up about 2% in extended trading after beating Wall Street revenue estimates on strong demand for its cloud services, easing some recent concerns about the sustainability of the AI boom and the company’s debt burden. The stock is down 32% for the year.
Declining issues outnumbered advancing issues by a ratio of 2.27 to 1 on the New York Stock Exchange and 2.26 to 1 on the Nasdaq.
The S&P 500 recorded seven new 52-week highs and three new lows, while the Nasdaq Composite recorded 59 new highs and 238 new lows.
Volume on U.S. exchanges totaled 17.08 billion shares, compared to an average of 18.83 billion for the entire session over the past 20 trading days.
(Reporting by Chuck Mikolajczak in New York; additional reporting by Niket Nishant and Utkarsh Hathi in Bengaluru; editing by Devika Syamnath and Matthew Lewis)
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