Stocks slip as CPI tops forecasts and Waller floats bigger December hike

What moved markets on Tuesday

Stocks eased after October inflation surprised to the upside, with the S&P 500 down 0.4%, the Dow off 156 points or 0.3%, and the Nasdaq lower by 0.7%. Nvidia fell 5%, pulling on all three benchmarks.

Headline CPI increased 0.4% in October against a 0.3% Dow Jones estimate. Core CPI, which strips out food and energy, rose 0.3% versus a 0.2% forecast. Because the government is shut down in 2025, authorities did not release the annual readings for Tuesday's report.

Nvidia also sat out Monday's tech rally after CEO Jensen Huang acknowledged over the weekend a relationship involving an alleged Chinese spy.

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Rates, yields and the Fed setup

Treasury yields jumped on the data, with the 10 year note moving back above 5% as traders worried that rate increases could be more likely in 2027. Markets now view a December rate hike as close to certain and assign a small chance to a half point move, while also expecting at least one quarter point increase at some point next year.

While speaking in London, Fed Governor Christopher Waller indicated that a December rate increase is probable, and he left open the possibility of a half point move amid persistent inflationary pressures. "While the precise timing of the hikes doesn't matter, ensuring that the promised hikes are implemented in a reasonable period of time does," he said.

What pros said and why it matters

"There's an extrapolation that maybe the Fed's going to have to hike rates more aggressively next year," said U.S. Bank Asset Management's national investment strategist, Tom Hainlin. He added, "The CPI print said perhaps inflation is going to be a little stickier for a little longer."

The pullback followed the S&P 500's best day since April and came after a choppy week, as traders weighed whether Democrats' big midterm election victories might slow the pace of data center expansion. In plain English: hotter inflation and a Fed open to a larger December move keep rate risk front and center for your portfolio.

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