S&P 500 slumps 1% after hot inflation report, drop in AI-related stocks

The S&P 500 pulled back on Wednesday, pressured by a move higher in Treasury yields and losses in the artificial intelligence trade, as investors reacted to hotter-than-expected September consumer inflation data.

The broad market index was down 1.1%, while the Nasdaq Composite shed 1.7%. The Dow Jones Industrial Average outperformed, falling just 166 points, or 0.3%, with losses kept in check by gains in key healthcare stocks such as UnitedHealth and Amgen.

The consumer price index rose 0.6% in September month over month, with its year-over-year gain coming in at 3.7%. While the former was in line with expectations, the latter was hotter than expected, as economists polled by Dow Jones had anticipated a 3.6% advance on the year.

Excluding food and energy prices, core CPI posted a monthly and yearly advance of 0.3% and 2.6%, respectively. Both were also slightly higher than the increase of 0.2% and 2.5% that economists had expected.

Treasury yields jumped following the report. The 10-year Treasury yield rose more than 7 basis points to 5.293%, and the 30-year Treasury yield up more than 4 basis points at 5.609%. Both had hit new 24-year highs last week.

"Today's release should be a modest headwind to risk assets, as expectations for near-term rate hikes increases pressure on the long end of the curve which should strengthen the dollar but be a headwind for equity valuations," said Jeff Schulze, head investment strategist at Franklin Templeton Institute.