Nasdaq Drops Sharply as Hot US Inflation Data Sparks Rate Hike Fears

US stock markets faced significant downward pressure on Wednesday as fresh economic data indicated an acceleration in consumer prices, fueling concerns that the Federal Reserve may implement further interest rate hikes. The Nasdaq Composite bore the brunt of the sell-off, shedding 502.90 points, or 1.85%, to close at 26,701.48. The broader S&P 500 index also retreated, falling 83.96 points, or 1.08%, to finish at 7,721.49, while the Dow Jones Industrial Average saw a more modest decline of 45.23 points, or 0.09%, ending at 51,624.87.The sell-off was triggered by the Labor Department’s Bureau of Labor Statistics, which reported that US consumer prices climbed in September. The increase was largely driven by a surge in gasoline costs, though officials noted that inflationary pressures had begun to broaden beyond the energy sector. According to Adam Sarhan, chief executive of 50 Park Investments, investors responded negatively to the report as it increased the perceived necessity for the Federal Reserve to adopt a more aggressive monetary policy to combat inflation, which he described as the market's primary concern.High-growth technology firms, particularly those in the artificial intelligence sector, experienced sharp volatility. Shares of Oracle, CoreWeave, and Nebius saw significant declines as market participants reacted to the sensitivity of these companies to higher borrowing costs. Further compounding the pressure on the tech sector, Barclays downgraded AI server manufacturers Dell and Hewlett Packard Enterprise, moving them from "overweight" to "equal-weight," which led to a notable drop in their stock prices. Additionally, the Philadelphia SE Semiconductor index recorded its sixth consecutive day of losses, marking its longest such streak since May 2025.In the banking sector, results were mixed as major lenders faced their own set of challenges. Bank of America reported a decline in third-quarter profits after setting aside $1.2 billion to address regulatory fines related to failures in detecting potential money laundering. Following the news, the S&P 500 Banks index fell to a four-month low. Morgan Stanley also saw its share price drop despite posting an increase in its quarterly profit.Traders are now recalibrating their expectations for the Federal Reserve’s upcoming policy meetings. Data from CME’s FedWatch tool indicates that the probability of a rate hike this month has risen to 37%, a notable increase from the 22% probability assessed on Tuesday. Prior to the release of the inflation data, Federal Reserve Vice Chair for Supervision Michelle Bowman had suggested that the central bank was in a position to observe how the economy evolved following the September rate move before deciding on any further intervention.Despite the recent downturn, the S&P 500 retains a gain of over 12% for 2026, a performance largely supported by the rally in AI-linked stocks earlier in the year. However, market breadth remains a point of concern for analysts, as over 200 components within the S&P 500 are currently trading in negative territory for the year. Amidst the broader market retreat, Bending Spoons saw a rally in its stock price after receiving a $330 million investment from Berkshire Hathaway, marking a significant endorsement from the firm.