Stocks Drop as Rate-Hike Worries Rise: Stock Market Today

red arrow stair-stepping higher with a red percentage sign underneath, signifying rising interest rates — (Image credit: Getty Images)

Stocks opened lower Tuesday and stayed in negative territory through the close as a hot inflation reading all but cemented a December rate hike. Market participants now face the question of how much the Federal Reserve will increase interest rates next month.

At the close, the blue-chip Dow Jones Industrial Average was down 0.3% at 52,231, the broader S&P 500 was 0.4% lower at 7,520, and the tech-heavy Nasdaq Composite was off 0.7% at 25,065.

The negative price action came as the Bureau of Labor Statistics (BLS) said this morning that headline inflation rose 0.4% from September to October — slower than the 0.6% from the month prior, but faster than the 0.3% increase economists expected.

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Higher costs for shelter, food, and energy contributed to the October CPI increase. The report did not include a year-over-year inflation change because of last fall's lengthy government shutdown.

Core CPI, which excludes volatile food and energy prices, was up 0.3% month over month, matching August and September.

"Hotter-than-expected headline and core CPI confirms inflation is a bit stickier than economic consensus presumed and likely cements a hike in December," says Michael Casper, senior market strategist and director of equity at HB Wealth.

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Many are now questioning the magnitude of a December rate hike, particularly after Fed Governor Christopher Waller said Tuesday that a jumbo-sized half-percentage-point hike "should be considered." But Casper believes the Fed will raise rates by a quarter-percentage point, "given the recent market volatility and drop in oil."

At last check, CME Group FedWatch showed futures traders are pricing in 90% odds of a 0.25% rate hike and a 10% probability of a 0.50% increase to the federal funds rate.

Treasury yields spike after inflation data

Rate-hike odds weren't the only thing rising on Tuesday. Treasury yields soared to their highest levels since late October on expectations the Federal Reserve will be forced to raise rates into the new year to battle inflation.

The yield on the 2-year Treasury jumped 18.9 basis points to 4.736%, while the yields on the 10-year (+12.6 bps to 4.9882%) and 30-year (+9.3 bps to 5.349%) Treasury notes also climbed by double digits.

As a reminder, the bond market is closed tomorrow in observance of the Veterans Day holiday, but the stock market will be open for regular trading hours.

Tech stocks drop as Anthropic IPO nears

Rising Treasury yields weighed on rate-sensitive tech stocks, given concerns that higher borrowing costs will cut into their bottom line. The sector also struggled as new details about the upcoming Anthropic IPO emerged.

Earlier today, Anthropic — the first pure-play artificial intelligence lab to go public — said in an updated filing that it plans to sell 825 million Class A shares at $70 to $78 apiece.

At the high end of this price range, the company would raise more than $64 billion at a $1.405 trillion valuation — less than the $2 trillion valuation many were anticipating just weeks ago. This is particularly concerning considering it comes at a time when AI stocks have sold off on worries over sky-high valuations and potential regulatory headwinds.

Even with all the volatility in the space right now, Avery Marquez, director of Investment Strategies at Renaissance Capital, a provider of pre-IPO research and IPO-focused ETFs, does not believe "there will be a question of demand for Anthropic's story."

Anthropic could begin trading as early as next week, though no specific date has been given.

Nvidia stock keeps sliding

Elsewhere in the tech space, Nvidia (NVDA) kept sliding after the chipmaker's board of directors said over the weekend that it is investigating a romantic relationship CEO Jensen Huang had with an executive at a Singapore-based cloud company whom U.S. officials have classified as a Chinese spy.

The news has left many on Wall Street wondering if Jensen Huang — widely considered one of the most influential figures in the AI industry — will be removed as head of Nvidia, but Wedbush analysts don't think it will come to that.

"Such a result would certainly, in our view, be the worst possible outcome from this set of events and a significant negative for NVDA, given the CEO's integral role in shaping NVDA, his still hands-on operating style, and his importance in dictating not just the direction of NVDA, but also the broader AI ecosystem," the analysts write.

Still, they believe the revelation removes some of Huang's power and credibility "in advocating for AI and Nvidia with U.S. government representatives."

NVDA fell 5.5% today — making it the worst Dow Jones stock for a second straight session — and is now down nearly 30% since early October.

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With over a decade of experience writing about the stock market, Karee Venema is the senior investing editor at Kiplinger.com. She joined the publication in April 2021 after 10 years of working as an investing writer and columnist at a local investment research firm. In her previous role, Karee focused primarily on options trading, as well as technical, fundamental and sentiment analysis.