October CPI tops forecasts; Dow, S&P 500 and Nasdaq all decline

Fed officials signal December hike is a near-certainty

Rate futures price in 100% chance of increase; big-step move on table

US 10-year yield approaches 5% threshold again

Nvidia drops 5.53% as scandal and China export curbs weigh on tech

Traders work on the floor of the New York Stock Exchange on Tuesday (local time). [AFP]
Traders work on the floor of the New York Stock Exchange on Tuesday (local time). [AFP]

All three major New York stock indexes fell Tuesday after October consumer price index data came in above market expectations and senior Federal Reserve officials underscored the need for further monetary tightening.

A December benchmark interest rate hike was seen as all but certain, sending US government bond yields sharply higher and triggering a broad sell-off in major technology shares. Nvidia led the declines, tumbling more than 5% as a scandal involving CEO Jensen Huang overlapped with fresh concerns over export restrictions on China-bound chips.

The Dow Jones Industrial Average closed down 157.86 points, or 0.30 percent, at 52,231.89 on the New York Stock Exchange on Tuesday (local time). The S&P 500 fell 29.01 points, or 0.38 percent, to 7,520.93, while the Nasdaq Composite dropped 187.26 points, or 0.74 percent, to 25,065.87.

The declines were driven by rising rate fears. The US Department of Labor reported that October CPI rose 0.4 percent from the prior month, while core CPI — which strips out volatile energy and food prices — climbed 0.3 percent, both exceeding forecasts. The stronger-than-expected inflation data reinforced concerns that the Fed would raise its benchmark interest rate in December.

Fed officials added to the hawkish tone. Governor Christopher Waller said he supports a December rate hike and left open the possibility of a 50-basis-point "big step" increase if inflation persists. "Raising rates by only 25 basis points could jeopardize our credibility," Waller said.

Dallas Fed President Lorie Logan said it remains clear that the FOMC should deliver at least two more 25-basis-point increases given the current outlook. "It may be possible for the FOMC to move faster this winter than it did this fall," she added.

According to CME FedWatch, rate futures markets are pricing in a 100 percent probability that the Fed will raise its benchmark interest rate in December. Traders assigned an 88.5 percent chance to a 25-basis-point hike and an 11.5 percent chance to a 50-basis-point move.

"With price data continuing to come in strong, the Fed could push through a more aggressive tightening cycle," said Lindsey Rosner of Goldman Sachs. "A December rate hike is our firm base case."

Rick Rieder of BlackRock said a December hike is "almost certain," adding that "the remaining question is whether it will be 25 or 50 basis points."

Bond yields surged on the inflation shock and tightening fears. The policy-sensitive 2-year Treasury yield jumped more than 17 basis points to 4.73 percent. The benchmark 10-year yield rose more than 10 basis points to 4.99 percent, closing in again on the psychologically significant 5 percent threshold. The 30-year yield also climbed, reaching 5.18 percent.

Nvidia fell for a second consecutive session, weighed down by an investigation into a scandal involving CEO Jensen Huang and concerns over export restrictions on China-bound chips. The stock dropped 5.53 percent, and its market capitalization briefly dipped below $4 trillion for the first time since July last year. Microsoft also slid 2.20 percent after a rival launched a new AI office suite, while Alphabet fell 0.38 percent, Apple dropped 0.62 percent, and SK hynix American depositary receipts declined 3.51 percent, extending a broad retreat across technology shares.


th5@heraldcorp.com