NEW YORK: The S&P 500 and the Nasdaq tumbled on Wednesday as banks slid after quarterly results and hot inflation data boosted bets of interest rate hikes, pressuring beneficiaries of the AI buildout sensitive to higher borrowing costs.
Expectations for higher interest rates extending into next year dealt a sharp blow to some of the market’s biggest gainers of 2026.
Hyperscaler Oracle lost 7.8 percent, while neocloud firms CoreWeave and Nebius fell over 11 percent each.
AI server makers Dell and HP lost 11.5 percent and 7.8 percent, respectively, after Barclays downgraded the stocks to “equal-weight” from “overweight”.
Chip stocks were also under pressure, with the Philadelphia SE Semiconductor index set for its sixth session of declines, its longest losing streak since May 2025.
Concerns over higher borrowing costs stemmed from data showing US consumer prices accelerated more than expected in September, amid surging gasoline prices.
Traders now see a 60 percent chance of a quarter-point increase, compared with a 21.6 percent chance before the figures, according to LSEG-compiled data.
“The more important question is whether firmer core inflation is enough to alter the Fed’s path. Combined with continued economic resilience, this suggests the Fed’s job is not yet done,” said Seema Shah, chief global strategist at Principal Asset Management.
“We expect further hikes in December and early 2027 before the Fed can be confident that inflation is on a sustained path back to target.”
At 12:30 p.m. ET, the Dow Jones Industrial Average fell 154.07 points, or 0.30 percent, to 51,516.03, the S&P 500 lost 86.06 points, or 1.10 percent, to 7,719.86 and the Nasdaq Composite lost 452.67 points, or 1.66 percent, to 26,751.71.
Markets also digested another round of bank earnings. Bank of America was down 5.3 percent after the lender’s profit fell in the third quarter as it set aside USD1.2 billion to cover regulatory fines, while Morgan Stanley dipped 3.5 percent despite a rise in quarterly profit.
The S&P 500 Banks index touched its lowest level in over four months, before paring some losses.
Asset manager BlackRock was up marginally after reporting a jump in third-quarter profit.
However, sectors considered traditionally defensive rose, with consumer staples and healthcare stocks up 1.7 percent and 2.1 percent, respectively. Gains in these stocks contained the Dow’s declines.
The Fed has time to wait and see how markets and the economy evolve after its September rate rise before deciding further action, its Vice Chair for Supervision Michelle Bowman said.
Remarks from Richmond Fed President Tom Barkin and the Fed’s Beige Book report on regional economic conditions are also due late in the day.
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