Stocks ended Tuesday with the major averages lower but well off their session lows. The Nasdaq Composite, down 1.7% at its low, finished the day down 0.7%. The Russell 2000 lost 0.6% after being down 1.5%, while the market-cap-weighted S&P 500 declined 0.4%, much improved from the larger 1.1% decline seen in early-afternoon trading. The more important distinction was beneath the surface: the equal-weighted S&P 500 finished flat, showing that the closing weakness was concentrated in the largest growth stocks rather than spread evenly across the market.

The S&P 500 information technology sector dropped 1.4%, with NVIDIA (NVDA 168.80, -9.87, -5.53%) and Microsoft (MSFT 533.16, -12.02, -2.20%) among the prominent mega-cap drags.

NVIDIA remained under pressure amid continuing fallout from reports about CEO Jensen Huang's affair with an alleged Chinese spy. NVIDIA's independent directors retained outside counsel to investigate. Microsoft traded lower amid Anthropic's (ANT) beta launch of Claude Whiteboards and Claude Sheets, which will reportedly sharpen competition in workplace software. Relatedly, Anthropic disclosed in an amended S-1 filing that it will offer 825 million shares at an estimated price between $70.00 and $78.00, putting it on track for an IPO before Thanksgiving.

The afternoon recovery effort had a clearer rotational character. The financials and consumer discretionary sectors each gained 0.5%, helping the equal-weighted benchmark erase an earlier decline even as technology remained the main index-level restraint. That divergence explains why the broader market looked healthier at the close than the headline S&P 500 and Nasdaq results suggested.

The hotter-than-expected October CPI report set the day's rate backdrop. Total CPI increased 0.4% month-over-month in October (Briefing.com consensus: 0.3%), while core CPI, which excludes food and energy, jumped 0.3% month-over-month (Briefing.com consensus: 0.2%). The BLS didn't provide a year-over-year reading due to the lack of data last October that resulted from the government shutdown.

The key takeaway from the report is that inflation is not settling in a manner that is going to satisfy the Federal Reserve. A 25-basis-point rate hike at the December FOMC meeting to 4.00-4.25% is now fully priced in by the fed funds futures market, according to the CME FedWatch Tool. There is a 65% probability of at least another 25-basis-point hike at the January FOMC meeting to 4.25-4.50%.

Treasuries sold off sharply after the CPI report. A weak $42 billion 10-year note auction did little to help. The 2-yr yield rose 18 basis points to 4.74%, and the 10-yr yield increased 12 basis points to 4.98%, both closing at November highs.

Oil provided a separate cross-current. WTI crude fell as low as $83.88 per barrel as hopes for a diplomatic resolution involving Iran built, then recovered after Iran's top security official said there were no current talks with the U.S. WTI settled down 0.9% at $86.11 per barrel, leaving less of the energy-price relief that had been evident before the CPI release when WTI crude futures were trading under $84.00 per barrel.

The session ultimately showed a market able to absorb a meaningful rate shock without sustaining its worst levels, but the split between mega-cap technology and the broader market remained pronounced into the close. The Treasury market will be closed Wednesday for Veterans Day, while the New York Stock Exchange will be open for a regular session.

• Russell 2000: +13.8% YTD
• S&P Mid Cap 400: +12.0% YTD
• S&P 500: +9.9% YTD
• DJIA: +8.7% YTD
• Nasdaq Composite: +7.8% YTD

Reviewing today's data:

• October NFIB Small Business Optimism 97.8 vs. 98.0 Briefing.com consensus; prior 97.9
• October CPI 0.4% vs. 0.3% Briefing.com consensus; prior 0.6%
• October Core CPI 0.3% vs. 0.2% Briefing.com consensus; prior 0.3%

Wednesday's economic calendar:

• 7:00 AM ET: 11/07 MBA Mortgage Applications Index; prior -1.2%