Nasdaq and S&P 500 Drop Third Day as September Inflation Hits 3.7%

The Nasdaq Composite and the S&P 500 declined for a third consecutive session on Wednesday after official data indicated that annual consumer inflation reached a four-month high. The Nasdaq Composite fell 1.9% to close at 26,692.87, while the S&P 500 dropped 1.1% to 7,718.94. The Dow Jones Industrial Average edged down 0.1% to 51,621.48, with technology stocks leading the broader losses and healthcare sectors pacing the gains.

Consumer price growth in September hit 3.7% year on year, the highest level since May, according to the reported data. Core inflation also accelerated, rising to 2.6% from 2.4% in August. TD Economics noted in a report that with core inflation running at that level and oil prices remaining elevated, the Federal Reserve likely cannot remain on the sidelines for much longer due to the risk of price pressures spreading to other categories.

Market expectations for monetary policy shifted in response to the data. The probability of the US central bank hiking rates by 25 basis points on October 28 rose to 33% on Wednesday from 22% on Tuesday, according to the CME FedWatch tool. Conversely, the likelihood that the benchmark rate would be kept steady fell to 67%, down from 78%.

Treasury yields moved in opposite directions during the session. The two-year rate increased by 1.9 basis points to 4.81%, while the 10-year rate decreased by 1.9 basis points to 5.20%.

Banking stocks reacted to mixed third-quarter earnings reports. Bank of America (BAC) shares declined 4.8% after the company missed market expectations due to a regulatory settlement charge and weak revenue in trading and investment banking. Morgan Stanley (MS) shares fell 2.8% despite topping estimates on an equity trading revenue boost. State Street (STT) shares dropped 4.1% after its updated full-year fee revenue outlook fell short of analyst expectations and its third-quarter top-line missed market views.

BlackRock (BLK) shares closed 0.7% higher following an unexpected increase in third-quarter net inflows driven by strong institutional demand and retail inflows. In technology, Dell (DELL) shares tumbled 11%, marking the second-worst performance on the S&P 500, while Nvidia (NVDA) dropped 3.2%, the largest decliner on the Dow. Honeywell (HON) shares rose 0.2% after unveiling an industrial AI simulation platform built with Nvidia and Dell.

Commodity prices reflected the inflationary pressure and shifting demand outlooks. West Texas Intermediate crude oil gained 1% to $95.09 a barrel, while Brent crude rose 0.3% to $106. The International Energy Agency lowered its global oil demand outlook for this year amid elevated fuel prices, predicting only a partial recovery in 2027. Spot gold fell 1.5% to $4,099.69 per troy ounce, and silver slumped 6.3% to $55.77 per ounce.