Megacap companies dragged U.S. stock indexes lower on Thursday after a hotter consumer prices reading and comments from St. Louis Federal Reserve Bank President James Bullard raised fears the Fed will act aggressively to counter inflation.
The Labor Department data showed consumer prices surged 7.5% last month on a year-over-year basis, topping economists' estimates of 7.3% and marking the biggest annual increase in inflation in 40 years.
Bullard, a voting member of the Fed's rate-setting committee this year, said the data had made him "dramatically" more hawkish and that he now wanted a full percentage point of interest rate hikes by July 1.
"He expects 1% by July - a total of 100 basis points in increases - that spooked the market," said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina.
"It just shows the markets that interest rates are likely to move higher and more quickly than previously expected."
Traders are now betting the Fed will begin raising rates at its March meeting, with money markets pointing to 60% odds of a half-point increase next month, compared with 30% before the release of the data.
At 13:41 p.m. ET, the Dow Jones Industrial Average was down 390.60 points, or 1.09%, at 35,377.46, the S&P 500 was down 60.75 points, or 1.32%, at 4,526.43, and the Nasdaq Composite was down 213.03 points, or 1.47%, at 14,277.34.
"I expect that we'll see a return of the volatility that was prevalent for most of the month of January in the wake of this report," said Brian Price, head of investment management for Commonwealth Financial Network.
"Investors may want to buckle up as it could be a rough ride for risk assets until inflationary data starts to abate, and I expect that it will, as we move through the year."
Megacap growth stocks such as Tesla Inc, Apple Inc, Amazon.com Inc, Google-owner Alphabet Inc and Microsoft Corp fell more than 1% each.
All of the 11 major S&P 500 sectors declined, with technology shares, which are particularly pressured by higher yields, dropping 2.4%.
Meanwhile, the fourth-quarter earnings season was on full throttle, with 78.1% of the 342 S&P 500 companies that have reported results beating analysts' profit estimates, according to Refinitiv data.
Walt Disney Co rose 3.1% after beating revenue and profit estimates on strong subscriber additions and attendance at U.S. theme parks.
Barbie maker Mattel Inc and cereal maker Kellogg Co gained 7.7% and 3.2%, respectively, after forecasting full-year profit above market expectations.
Declining issues outnumbered advancers by a 2.09-to-1 ratio on the NYSE and a 1.54-to-1 ratio on the Nasdaq.
The S&P recorded 31 new 52-week highs and one new low, while the Nasdaq recorded 54 new highs and 67 new lows.