Stocks declined on Wednesday as September inflation data exceeded analyst forecasts and geopolitical tensions in the Strait of Hormuz intensified. The Dow Jones Industrial Average fell 0.09%, while the S&P 500 dropped 1.10%. The tech-heavy Nasdaq Composite underperformed both indices, plunging 1.88% as artificial intelligence-related stocks continued to weigh on the market.
The Bureau of Labor Statistics reported that inflation gained 0.6% last month, with the annual figure standing at 3.7%, surpassing the 3.6% expected by analysts. Gas prices were a primary driver, rising more than 9% in September and accounting for more than half of the overall increase. The agency detailed that the energy index increased 5.2% over the month. The shelter index rose 0.4% in September after a 0.3% gain in August, while the food index remained unchanged as food away from home increased 0.2% and food at home fell 0.1%.
Market participants adjusted their expectations for Federal Reserve policy in response to the data. According to the CME Group's FedWatch tool, the probability of a rate hike at the October meeting rose to almost 35% from 22.1% before the release, though estimates touched 49% during the session before moderating. These moves align with recent minutes from the Federal Open Market Committee, which indicated that a majority of officials viewed another increase in the target range for the federal funds rate as appropriate before the year ends.
Simultaneously, energy markets face continued disruption from escalating hostilities involving Iran. Two ships, a container ship and a dry bulk carrier, were hit by projectiles in separate incidents in the Strait of Hormuz over the past day. Senior Iranian officials told Reuters that Tehran is employing new tactics to disrupt traffic in the waterway, aiming to prevent the United States from lowering oil prices ahead of midterm elections. While specific details of these tactics were not disclosed, officials confirmed that the pace and type of attacks have changed to target more vessels seeking to transit the area.
A U.S. official stated that Tehran has begun using unarmed spotters in small boats to identify potential targets. This escalation follows an announcement on Friday by the Iranian Revolutionary Guard Corps, which declared it would pursue vessels not transiting approved routes even outside the waterway and throughout the entire region, warning that its punishment would be definitive.