The stock market finished broadly lower on Wednesday as accelerating inflation raised concerns about the Federal Reserve's policy outlook, while persistent weakness in semiconductor and other technology stocks weighed heavily on the major averages. The Nasdaq Composite (-1.9%) suffered the steepest decline, followed by the S&P 500 (-1.1%), while the DJIA (-0.1%) finished with a relatively modest loss thanks to strength in defensive stocks.

The September Consumer Price Index report set the tone for the session, showing that headline inflation accelerated to 3.7% year-over-year from 3.4% in August, while core inflation increased to 2.6% from 2.4%. On a monthly basis, total CPI rose 0.6%, matching expectations, while core CPI increased 0.3%, slightly above the Briefing.com consensus estimate of 0.2%. The acceleration in annual inflation, moving further away from the Fed's 2.0% target, fueled concerns about additional monetary policy tightening. The CME FedWatch tool showed the probability of a 25-basis-point rate hike at the October FOMC meeting jumping from 22.1% yesterday to nearly 50% immediately following the report.

Treasury yields also surged in response, with yields on the 3-, 5-, and 7-year notes reaching fresh 2026 highs before steadily retreating throughout the session. The recovery coincided with a moderation in rate hike expectations, which moved back toward yesterday's levels as the day progressed. Notably, the reversal in yields provided little relief for equities, which continued sliding through the afternoon despite the improving Treasury backdrop. The 2-year note yield settled up one basis point to 4.80%, and the 10-year note yield settled down three basis points to 5.19%.

The S&P 500 briefly fell below the 7,700 level and its 50-day moving average near 7,706 before recovering somewhat from its session lows. Technology stocks remained at the center of the selling pressure throughout the day. The information technology sector (-2.6%) finished at the bottom of the S&P 500 leaderboard, with the PHLX Semiconductor Index plunging 4.3% and extending its recent stretch of pronounced weakness. Mega-cap stocks also struggled, reflected in a 2.1% decline in the Vanguard Mega Cap Growth ETF, while the iShares Expanded Tech-Software Sector ETF fell 3.0%.

The retreat was especially pronounced among AI and data center infrastructure companies, where concerns about rising capital costs and the ability to support ambitious expansion plans weighed heavily on sentiment. CoreWeave (CRWV 65.78, -12.03, -15.46%) was a particular laggard amid reports that its unsecured debt maturing in 2032 had fallen to levels associated with financial distress, adding to existing concerns about financing requirements across the industry. Dell (DELL 507.45, -65.02, -11.36%) and Hewlett Packard Enterprise (HPE 63.17, -5.64, -8.20%) also faced sharp selling pressure after Barclays downgraded both stocks to Equal Weight from Overweight.

Weakness extended into other growth-oriented areas, with the communication services (-1.7%) and consumer discretionary (-1.1%) sectors posting sizable declines. Airline stocks were particularly weak as elevated fuel costs and accelerating inflation raised concerns about profitability and travel demand. The industrials sector (-1.0%) also struggled, while the Russell 2000 (-1.9%) and S&P Mid Cap 400 (-1.3%) underperformed the S&P 500, reflecting the broader market's difficulties.

The financials sector (-0.6%) also finished lower amid mixed reactions to quarterly earnings. Bank of America (BAC 51.42, -2.54, -4.71%) declined after weaker trading and investment banking revenue, an earnings miss, and a regulatory charge overshadowed continued net interest income growth. Morgan Stanley (MS 181.60, -5.04, -2.70%) also retreated despite topping earnings expectations, while BlackRock (BLK 1074.17, +8.05, +0.76%) held up relatively well following its quarterly report.

In contrast, defensive stocks attracted considerable buying interest as investors sought shelter from the broader retreat. The health care sector (+2.5%) and consumer staples sector (+2.4%) were the clear leaders, with strength in UnitedHealth (UNH 395.76, +18.00, +4.76%), Merck (MRK 147.36, +5.38, +3.79%), Walmart (WMT 116.16, +3.88, +3.46%), and Coca-Cola (KO 91.80, +1.69, +1.88%) helping the DJIA avoid a steeper decline. Discount and value-oriented retailers also outperformed, reflecting expectations that persistent inflation could encourage consumers to shift more spending toward lower-priced essentials.

The energy sector (+0.8%) was another outperformer as WTI crude oil futures settled $1.05 higher (+1.1%) at $95.11 per barrel.

Ultimately, Wednesday's session reinforced the divergence between technology and defensive stocks, with the recovery in Treasury prices doing little to improve sentiment toward growth-oriented companies. The losses also left all three major averages in negative territory for the week, although the DJIA remains only modestly lower compared with the more substantial declines in the S&P 500 and Nasdaq Composite.

Attention now turns to Thursday's September Producer Price Index report for further insight into inflation trends, alongside earnings from Taiwan Semiconductor Manufacturing (TSM 430.00, -15.12, -3.40%), which could influence sentiment toward the recently battered semiconductor group.

Reviewing today's data: 

• 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.
• The Fed's Beige Book for October noted that economic activity in seven Districts was essentially muted while just two Districts reported moderate growth. The Dallas District observed robust manufacturing growth while six other Districts saw modest to moderate manufacturing growth. Consumer spending was little changed in general while employment levels were also steady. Three Districts reported robust growth in prices while eight observed moderate growth.
• The weekly MBA Mortgage Index fell 2.7% to follow last week's 4.2% decrease. The Purchase Index was down 4.0% while the Refinance Index was up 0.5%.