Hotter-than-expected CPI and bank earnings drive Wall Street futures lower

Key points

• S&P 500 futures dropped 0.2% and Nasdaq 100 futures fell 0.5% following the CPI release.
• Headline CPI rose 0.6% month-over-month and 3.7% year-over-year, while core CPI rose 0.3% month-over-month.
• Gasoline prices surged 9.1% month-over-month, accounting for over half of the monthly headline CPI increase.
• Citigroup shares fell 5.6%, the worst performance on the KBW Banks Index, while JPMorgan and Goldman Sachs also declined.
• Bank of America reported a profit drop due to $1.2 billion in provisions related to U.S. fines, while BlackRock and Morgan Stanley saw profit increases.

Background

In August, U.S. CPI rose 0.4% month-over-month, keeping annual inflation at 3.4% and core inflation at 2.4%. This data had previously driven a 90% probability of a Federal Reserve rate hike. However, subsequent August PCE data came in below expectations at 3.4% year-over-year, cooling inflation fears and delaying expected rate hikes to December. The current September CPI report marks a notable acceleration from these August figures.

Why it matters

The hotter-than-expected inflation data increases pressure on the Federal Reserve to maintain or raise interest rates, potentially impacting borrowing costs and market valuations. Mixed bank earnings highlight sector-specific risks, particularly in fixed-income trading and regulatory compliance, while the resilience of AI hyperscalers suggests continued investor confidence in the technology sector despite broader market volatility.

What to watch

Investors will monitor the Federal Reserve's response to the inflation data and upcoming economic indicators. Additional bank earnings releases and Anthropic's first public disclosure of third-quarter financial results will provide further insights into sector performance and AI industry stability.