The Nasdaq Composite plunged more than 2% on Wednesday as stronger-than-expected US inflation data revived expectations of another Federal Reserve interest rate increase, triggering a broad selloff across Wall Street.
Technology stocks led the decline as investors reacted to rising Treasury yields, concerns about competition from Chinese technology companies and renewed uncertainty surrounding the artificial intelligence investment boom.
The latest Consumer Price Index (CPI) report showed that US inflation accelerated in September, prompting financial markets to reassess the likelihood of further monetary tightening.
Nasdaq Drops 2.1% as Technology Stocks Lead Wall Street Selloff
At 14:00 ET (18:00 GMT), major US stock market indexes were trading sharply lower:
- Nasdaq Composite: Declined 2.1% to 26,645.31 points.
- S&P 500: Fell 1.4% to 7,698.39 points.
- Dow Jones Industrial Average: Lost 0.5% to 51,396.61 points.
The technology-heavy Nasdaq suffered the largest losses as rising government bond yields placed additional pressure on growth-oriented stocks.
Higher interest rates can reduce the present value of companies’ expected future earnings, making technology shares particularly sensitive to changes in Federal Reserve policy expectations.
Meanwhile, concerns about growing competition from Chinese technology companies added to the sector’s weakness.
The Dow Jones Industrial Average performed relatively better, supported by gains among major healthcare companies.
UnitedHealth, Amgen and Merck advanced between 3.3% and 3.9%, helping limit the blue-chip index’s losses.
US Inflation Accelerates to 3.7%, Exceeding Market Expectations
Wednesday’s market selloff followed the release of September’s US Consumer Price Index report.
According to the Bureau of Labor Statistics, headline inflation increased 0.6% month over month, accelerating from August’s 0.4% rise while matching economists’ expectations.
However, underlying inflation proved stronger than anticipated.
Core CPI, which excludes volatile food and energy prices, climbed 0.3% during September, exceeding the consensus forecast of 0.2%.
On an annual basis, headline consumer inflation reached 3.7%, while core inflation increased to 2.6%.
Both readings exceeded market forecasts and accelerated from their August levels, reinforcing concerns that inflationary pressures remain persistent across the US economy.
Energy costs were a major contributor to the stronger figures.
Gasoline prices surged 9.1% month over month, accounting for more than half of the overall monthly increase in consumer prices.
Furthermore, the broader energy index jumped 20.4% year over year, highlighting the substantial impact of elevated fuel costs.
The inflation surprise raised concerns that the Federal Reserve may need to maintain restrictive monetary conditions for longer than previously expected.
Fed Rate Hike Expectations Rise Sharply After Hot CPI Report
Before the latest inflation figures, investors had become less concerned about an immediate Federal Reserve interest rate increase.
Recent economic data, including indicators of US growth, employment and the central bank’s preferred inflation measure, had reduced expectations of additional monetary tightening.
However, September’s stronger CPI report significantly changed the market outlook.
According to CME Group’s FedWatch Tool, the probability of a 25-basis-point interest rate increase at the upcoming October meeting climbed to approximately 47%.
That represented a substantial increase from around 22% before the inflation announcement.
The sharp adjustment in market expectations contributed to higher Treasury yields, particularly among shorter-dated government securities.
Rising borrowing costs subsequently weighed on equities, with technology stocks experiencing some of the strongest selling pressure.
Meanwhile, the Federal Reserve’s latest Beige Book suggested that economic growth remained uneven across the United States.
Of the central bank’s 12 regional districts, two reported moderate economic expansion, three recorded modest growth and four experienced only slight increases in activity.
The remaining three districts reported no significant change in economic conditions.
These findings highlight the difficult balance facing policymakers as they attempt to contain inflation without unnecessarily weakening economic growth.
AI Stocks Face Renewed Pressure as Investors Question Valuations
Beyond inflation and interest rates, concerns surrounding the artificial intelligence industry continued to influence Wall Street sentiment.
Technology stocks had already faced selling pressure during the previous session as investors questioned the financial outlook of leading AI developers, including OpenAI and Anthropic.
Analysts at Vital Knowledge highlighted growing uncertainty surrounding the funding requirements and potential stock market valuations of these companies.
In particular, investors have become increasingly concerned about the significant borrowing and financing commitments supporting the rapid expansion of artificial intelligence infrastructure.
However, the analysts distinguished between emerging AI developers and major technology companies operating large-scale cloud computing businesses.
Established technology giants may be better positioned to finance AI investment through operating cash flow rather than relying heavily on external borrowing.
This financial advantage could provide greater resilience as investors become more selective about exposure to the artificial intelligence sector.
Vital Knowledge emphasized that its concerns center less on the usefulness of AI technology and more on whether companies such as OpenAI and Anthropic can achieve the public listing timelines and valuations anticipated by optimistic investors.
Meanwhile, media reports indicated that Anthropic, the developer of the Claude AI chatbot, was preparing to disclose its third-quarter financial results for the first time later Wednesday.
The anticipated release could provide investors with additional insight into the financial performance of a major privately held artificial intelligence company.
Wall Street Bank Stocks Slide Despite Mixed Earnings Results
Investors were also assessing a wave of third-quarter earnings reports from major US financial institutions.
Although several banks delivered relatively solid results, disappointing fixed-income trading revenue and concerns about future profitability weighed on the sector.
JPMorgan Chase shares edged lower after the country’s largest bank reported an unexpected decline in fixed-income trading revenue.
Goldman Sachs also came under pressure after its fixed-income business generated weaker revenue than analysts had anticipated.
Meanwhile, Citigroup was among the weakest performers in the KBW Banks Index, with shares declining approximately 5.6%.
The results raised questions about whether trading conditions and profitability across the banking industry could weaken after a period of relatively favorable market activity.
Bank of America Shares Fall Nearly 6% After Earnings Disappointment
Bank of America experienced a particularly sharp decline following its third-quarter earnings announcement.
The bank reported lower quarterly profit after recording a $1.2 billion regulatory settlement charge related to failures in detecting potentially illicit financial activity.
The substantial expense weighed on reported earnings, contributing to a decline of nearly 6% in Bank of America shares.
Elsewhere, BlackRock reported higher quarterly profit, supported by increased fees from managing client investments.
Nevertheless, the asset management giant’s stock slipped approximately 0.1%.
Morgan Stanley also recorded an increase in third-quarter income, benefiting from strong equity trading performance amid elevated financial market volatility.
Despite the positive earnings development, Morgan Stanley shares declined around 3.9%.
Vital Knowledge analysts suggested that the latest banking earnings were not necessarily disappointing overall, with most results broadly meeting expectations outside weaker fixed-income trading activity.
However, they identified growing concerns that current market conditions could represent a peak in profitability for parts of the financial services industry.
ASML Raises Annual Outlook as AI Chip Demand Remains Strong
Outside the banking sector, Dutch semiconductor equipment manufacturer ASML delivered a more optimistic assessment of the technology industry’s long-term prospects.
The company raised its annual outlook, citing continued growth in demand for advanced semiconductor manufacturing equipment.
ASML highlighted strong interest from customers involved in producing high-performance chips for artificial intelligence applications.
According to the company, some semiconductor manufacturers are already securing equipment orders extending as far as 2030.
These long-term commitments suggest that major chip producers continue to anticipate substantial demand for AI computing infrastructure.
However, the positive outlook failed to shield ASML from broader weakness in technology stocks.
The company’s US-listed shares declined approximately 2.1% as the inflation-driven market selloff affected semiconductor-related investments.
Nasdaq Outlook Hinges on Fed Policy and Technology Stock Performance
The latest Wall Street decline highlights the growing sensitivity of US equities to inflation data and Federal Reserve interest rate expectations.
The stronger September CPI report has revived concerns about additional monetary tightening, pushing Treasury yields higher and placing renewed pressure on technology stocks.
Meanwhile, uncertainty surrounding AI industry financing, competition from Chinese technology developers and mixed banking earnings has contributed to weaker investor sentiment.
Although major semiconductor equipment suppliers continue to report strong long-term demand, higher borrowing costs and valuation concerns remain important near-term risks.
Investors will now closely monitor upcoming economic releases, corporate earnings and comments from Federal Reserve officials ahead of the October policy meeting.
Ultimately, the Nasdaq selloff underscores the challenges facing growth-oriented stocks as persistent inflation, elevated bond yields and uncertainty over monetary policy continue to shape financial markets.
