Stock Market Update

[BRIEFING.COM] The stock market is facing broad selling pressure at midday after September's CPI report showed inflation accelerating further away from the Fed's 2.0% target, fueling concerns about additional policy tightening and weighing heavily on technology and other growth-oriented stocks. The S&P 500 (-1.0%) and Nasdaq Composite (-1.5%) are posting sizable losses, while the DJIA (-0.3%) is holding up relatively well thanks to strength in several defensive components.

The September CPI report showed headline inflation rising 0.6% month-over-month, in line with expectations, while core CPI increased 0.3%, exceeding the Briefing.com consensus estimate of 0.2%. More importantly, headline CPI accelerated to 3.7% year-over-year from 3.4% in August, while core CPI rose to 2.6% from 2.4%, reinforcing concerns about the direction of inflation. The report prompted a sharp repricing of rate hike expectations, with the CME FedWatch tool now assigning a 37.1% probability to a 25-basis-point hike at the October FOMC meeting, up from 22.1% yesterday.

Treasury yields jumped in response before easing somewhat from their highs, leaving the 10-year note yield up two basis points at 5.24%. The resulting pressure on growth stocks has been particularly evident in the information technology sector (-2.2%), where semiconductor stocks are facing another sharp retreat following yesterday's rebound. The PHLX Semiconductor Index is down 3.5%, while the Vanguard Mega Cap Growth ETF (-1.6%) reflects broader weakness among heavily weighted technology names.

AI and data center infrastructure stocks are also under considerable pressure, with CoreWeave (CRWV 66.35, -11.46, -14.73%) among the hardest hit as rising borrowing costs compound concerns about the substantial capital requirements and lofty growth expectations associated with AI infrastructure expansion. Elsewhere, Dell (DELL 510.61, -61.86, -10.81%) and Hewlett Packard Enterprise (HPE 63.84, -4.96, -7.22%) are notable laggards after Barclays downgraded both stocks to Equal Weight from Overweight.

The selling pressure extends well beyond technology, with the consumer discretionary (-1.4%), communication services (-1.3%), and industrials (-1.3%) sectors also posting sizable losses. Rate-sensitive areas are facing additional pressure from elevated Treasury yields, with the iShares U.S. Home Construction ETF down 2.6%. The Russell 2000 (-1.9%) and S&P Mid Cap 400 (-1.4%) are also underperforming, underscoring the widespread nature of today's retreat.

The financials sector (-1.0%) is also struggling amid mixed reactions to quarterly earnings. Bank of America (BAC 51.14, -2.82, -5.22%) is a notable laggard after an earnings miss and weaker trading and investment banking revenue overshadowed continued net interest income growth. Morgan Stanley (MS 180.35, -6.29, -3.37%) is also trading lower despite exceeding earnings expectations, while BlackRock (BLK 1065.60, -0.52, -0.05%) is bucking the weakness following its better-than-expected results.

There are some notable pockets of strength, particularly in defensive areas of the market. The health care sector (+2.1%) is the clear leader, followed by the consumer staples sector (+1.6%). UnitedHealth (UNH 387.75, +9.99, +2.64%), Walmart (WMT 114.84, +2.56, +2.28%), Merck (MRK 147.16, +5.18, +3.65%), and Coca-Cola (KO 91.64, +1.53, +1.70%) are among the outperformers in the DJIA, helping limit its decline despite the weakness elsewhere.

The energy sector (+0.8%) is also holding up well as WTI crude oil rises $1.48 (+1.6%) to $95.62 per barrel.

The latest retreat has pushed all three major averages into negative territory for the week, although the divergence in performance remains notable. The DJIA is only modestly lower on a week-to-date basis, supported by defensive strength, while the S&P 500 and Nasdaq Composite are facing considerably steeper weekly losses as selling pressure remains concentrated in technology and other growth-oriented stocks.

Reviewing today's data:

• 10/10 MBA Mortgage Applications Index -2.7% (Prior -4.2%)
• Total CPI increased 0.6% month-over-month (Briefing.com consensus: 0.6%), led by a 5.2% jump in the energy index, following a 0.4% increase in August. The September increase left total CPI up 3.7% year-over-year versus 3.4% in August. Core CPI, which excludes food and energy, increased 0.3% month-over-month (Briefing.com consensus: 0.2%), pushed by a 0.4% increase in the shelter index, following a 0.3% increase in August. That left core CPI up 2.6% year-over-year versus 2.4% in August.
  • The key takeaway from the report is the acceleration in inflation away from the Fed's 2.0% inflation target. That is going to accelerate concerns about a possible tightening of Fed policy at the October FOMC meeting, not to mention deficit worries as cost-of-living adjustments for 2027 for SSI recipients are on track to see their largest increase in three years.