Stocks were choppy for most of Thursday's session as investors mulled over the latest inflation data. However, the main benchmarks took a sharp turn lower in afternoon trading as Treasury yields spiked.
Ahead of the open, data from the Bureau of Labor Statistics showed that the September Consumer Price Index (CPI) was up 0.4% month-over-month and 3.7% year-over-year. While these figures were higher than economists were expecting, the monthly increase was slower than what was seen in August, while the annual rise was unchanged.
Core CPI, which excludes volatile energy and food prices, was up 0.3% compared to August, which was in line with economists' forecasts.
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"After the Fed's September minutes emphasized the rate setting committee's inclination to 'proceed carefully,' they are likely to hold the federal funds target unchanged at a range of 5.25% to 5.50% at the November decision," says Bill Adams, chief economist for Comerica Bank. "A last hike for this cycle is still possible if geopolitical tensions cause a jump in energy prices or the United Auto Workers strike drags on and pushes down auto inventories enough to push prices higher in early 2024."
Treasury yields spike after CPI data
Indeed, today's data gave a slight boost to expectations of another quarter-point rate hike at the next Fed meeting (12% from yesterday's 9%, according to CME Group). Still, futures traders are pricing in an 88% chance the central bank will keep interest rates unchanged at its upcoming gathering.
While the major indexes initially opened higher in the wake of the September CPI report, they took a nosedive shortly after lunchtime as Treasury yields jumped. Specifically, the yield on the 2-year government bond rose 6.4 basis points to 5.069%, while the yield on the 10-year note surged 10.6 basis points to 4.703%. (A basis point = 0.01%.)
As a result, the rate-sensitive Nasdaq Composite, which was up 0.4% at its intraday peak, finished the session down 0.6% at 13,574. The broader S&P 500 (-0.6% at 4,349) and the blue chip Dow Jones Industrial Average (-0.5% at 33,631) also ended lower.
Broadcom jumps on major M&A reports
In single-stock news, Broadcom (AVGO) climbed 3.6% amid reports that Chinese antitrust authorities are poised to give conditional approval to the chipmaker's $60 billion buyout of VMware (VMW, +4.2%), according to news and data website Dealreporter.
In late September, Broadcom CEO Hock Tan commented on the merger in the company's earnings call. "We have received legal merger clearance in Australia, Brazil, Canada, the European Union, Israel, South Africa, Taiwan, and the United Kingdom and foreign investment control clearance in all necessary jurisdictions," the executive said, adding that the company is "working constructively" with regulators in other jurisdictions.
"Broadcom is confident that the combination with VMware will enhance competition in the cloud and benefit enterprise customers by giving them more choice and control where they locate their workloads," Tan said.
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