Wall Street opened lower on Thursday as hotter-than-expected September inflation data reinforced expectations of a 25-basis-point rate hike by the Federal Reserve at its upcoming meeting.
The closely watched Consumer Price Index rose 0.2% on a monthly basis and 2.4% on an annual basis, with both figures being slightly higher than estimated by economists Reuters polled.
The core figure, which excludes volatile food and energy prices, rose 3.3% year-over-year, versus an estimated 2.3%.
The Dow Jones Industrial Average fell 75.96 points, or 0.18%, to 42,433.87, the S&P 500 lost 15.88 points, or 0.27%, to 5,776.16 and the Nasdaq Composite lost 69.40 points, or 0.38%, to 18,222.22.
The Russell 2000, which tracks economically sensitive small-cap stocks, lost 1.09%.
Rate-sensitive sectors fell, with Real Estate losing 0.6%, while Information Technology dropped 0.5%.
After the inflation data was released, traders firmed bets on a 25-bps cut in November at 86.9%, with a 13.1% chance of no change at all, according to CME’s FedWatch.
“The market’s reacting because you’re pricing out the possibility of big Fed rate cuts and the risk that the Fed isn’t going to be as supportive to markets,” said Cameron Dawson, chief investment officer at NewEdge Wealth.
Wall Street rises, inflation data in focus
However, weekly jobless claims also rose to 258,000 for the week ending Oct. 5, versus an estimate of 230,000.
“The CPI data coming in hotter than expected, and at the same time (that) initial jobless claims really picked up, is certainly a confusing message for markets,” Dawson said.
“Whether or not that means the Fed is going to be able to deliver the full extent of its expected interest-rate cuts is a good question.”
Meanwhile, Delta Air Lines lost 2.1% after forecasting quarterly revenue below expectations in anticipation of slower travel spending.
Other airlines also lost ground, with United Airlines down 1.4%, American Airlines losing 2% and Southwest Airlines slipping 1%.
Equity market performance has been largely led by expectations for easing monetary policy, with traders now scrutinizing how much further the central bank will lower borrowing costs this year.
Among other single movers, shares of Pfizer fell 2.4% as former executives distanced themselves from activist investor Starboard’s campaign against the drugmaker.
Both the S&P 500 and the Dow notched up record closing highs on Wednesday, after minutes from the Federal Reserve’s last meeting showed a “substantial majority” of policymakers had been in favor of September’s 50-bps rate cut.
The start of the third-quarter earnings season is also in focus, with major banks scheduled to report results on Friday.
The third-quarter earnings growth rate for the S&P 500 is estimated at 5% year-over-year, according to estimates compiled by LSEG.
Comments from Fed officials Thomas Barkin and John Williams are expected later in the day.
Investors also monitored the impact from Hurricane Milton, which made landfall on Florida’s west coast late on Wednesday.
Declining issues outnumbered advancers by a 2.06-to-1 ratio on the NYSE, and by a 2.65-to-1 ratio on the Nasdaq.
The S&P 500 posted four new 52-week highs and one new low, while the Nasdaq Composite recorded 13 new highs and 50 new lows.
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