US stocks closed lower on 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 shows 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 2-year US2YT=RR US Treasury yield, which typically moves in step with interest rate expectations for the Fed, surged nearly 20 basis points and was poised for its biggest daily gain since April 9, 2025. The jump in yields has come even as oil prices have eased to two-month lows as US officials have downplayed any imminent military actions against Iran.
According to preliminary data, the S&P 500 .SPX .SPX lost 28.46 points, or 0.38%, to end at 7,521.48 points, while the Nasdaq Composite .IXIC .IXIC lost 185.90 points, or 0.74%, to 25,067.23. The Dow Jones Industrial Average .DJI .DJI fell 161.95 points, or 0.31%, to 52,227.80. 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 buildout. But the S&P 500 technology sector .SPLRCT .SPLRCT dropped more than 1% on Tuesday as the worst-performing of the 11 major sectors, weighed down by another drop in Nvidia NVDA.O NVDA.O which fell nearly 6% and has tumbled about 10% 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 on Tuesday. But declines for the broader Philadelphia semiconductor index .SOX .SOX were more muted after two consecutive sessions of gains, as volatility in the AI trade increased.
Dallas Federal Reserve President Lorie Logan said that the Fed needs to deliver at least two more quarter-point interest rate increases to bring down inflation, and may need to do so promptly, while Kansas City Federal Reserve President Jeff Schmid said he believes the current policy rate is “fairly accommodative.” Federal Reserve Vice Chair of Supervision Michelle Bowman, however, stopped short of calling for interest rate hikes, but acknowledged that inflation was the central bank’s top priority.
Investors are also bracing for Anthropic’s ANT.O ANT.O 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 and cause portfolio repositioning by investors. Neocloud firm CoreWeave CRWV.O CRWV.O is expected to report quarterly earnings after the market close on Tuesday. Questions about the sustainability of the AI boom and the company’s debt burden have pressured the stock recently, which is down about 33% on the year. CoreWeave shares ended lower, along with those of its peer Nebius NBIS.O NBIS.O .
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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