Stock Market

Persistent Inflation Causes Stock Market Declines as CPI Rises in September

Discover how persistent inflation influenced the stock market today. Major indexes close lower following the latest CPI report.

Indexes slipped Thursday as investors reacted to a higher-than-expected inflation reading. The data raises the possibility of a "no landing" scenario for the U.S. economy. Traders still anticipate the Fed cutting interest rates by 25 basis points at next month's meeting.

Market Reaction to Persistent Inflation

Stocks fell on Thursday from records reached in the previous session, as traders took in the sticky inflation reading for September. All three benchmark indexes fell, with the Dow Jones Industrial Average down 0.40%, while the S&P 500 and Nasdaq fell by 0.21% and 0.05%, respectively.

The declines follow rises across the board on Wednesday, which saw fresh record closes for both the S&P 500 and the Dow, and comes after inflation proved stickier than expected last month. September consumer price index (CPI) data released on Thursday showed inflation rose 2.4% year-over-year, slightly above consensus forecasts of a 2.3% rise. The core CPI reading, which excludes more volatile food and energy costs, was up 3.3% year-over-year and just above forecasts of 3.2%.

Implications of Persistent Inflation on the U.S. Economy

This reading, coupled with last week's blockbuster jobs report, has sparked discussions of a "no landing" scenario for the U.S. economy, where strong economic growth fuels inflation and makes it harder for the Federal Reserve to cut rates. A no landing would likely mean rate cuts are fewer or slower than markets had previously forecast. It would also mean borrowers are saddled with higher interest rates on their debt for longer.

After the CPI release, investors adjusted their expectations for the Federal Reserve's easing cycle. The September jobs report diminished the chances of another significant 50 basis point cut, but the slightly higher-than-expected CPI likely isn't enough to fully halt the Fed's easing.

"Heading into the report, we thought only a very firm print would lead the Fed to consider pausing in November based on inflation alone. We did not get that," analysts from Bank of America stated Thursday. "While core PCE will be firmer than recent months, we think it will be enough for the Fed to follow through with a 25bp cut in November," they added.

Current Market Status Amid Persistent Inflation

Investors are now pricing in higher odds of a 25 basis point rate cut at the central bank's meeting next month, according to the CME FedWatch Tool.

Meanwhile, weekly jobless claims edged up 33,000 to 258,000, according to Labor Department data released Thursday. That number marks its highest level in over a year and outpaced forecasts of 230,000. The rise in jobless claims indicates a cooling labor market, which could impact consumer spending and overall economic growth.

Here's where U.S. indexes stood shortly after the closing bell on Thursday:

S&P 500: 5,780.05, down 0.21%

Dow Jones Industrial Average: 42,454.12, down 0.14% (-57.88 points)

Nasdaq Composite: 18,282.05, down 0.05%

Additional Insights on Persistent Inflation

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Commodities, Bonds, and Crypto Market Update

In commodities, bonds, and crypto:

Bitcoin fell 2% to $59,654.

Oil futures rose, with West Texas Intermediate crude climbing 3.7% to $75.93 a barrel, and Brent crude, the international benchmark, rising 3.7% to $79.44 a barrel.

Gold rose 0.8% to $2,646.70 an ounce.

The 10-year Treasury yield was about flat at 4.07%.

• Oil futures rose, with West Texas Intermediate crude climbing 3.7% to $75.93 a barrel, and Brent crude, the international benchmark, rising 3.7% to $79.44 a barrel.

• Gold rose 0.8% to $2,646.70 an ounce.

• The 10-year Treasury yield was about flat at 4.07%.

• Bitcoin fell 2% to $59,654.