'Hot' CPI Data Sends Yields, Rate Hike Odds Higher
Published as of: October 14, 2026, 9:11 a.m. ET
(Wednesday market open) Consumer prices beyond food and energy rose 0.3% in September, outpacing consensus of 0.2% and raising concerns that higher oil prices might be burrowing deeper into the economy. The headline Consumer Price Index (CPI) rose 0.6%, as expected, but the core number sent Treasury yields up quickly. Major indexes, which had been up approaching the data, quickly surrendered their gains and turned red as rate hike odds jumped.
"The September core CPI print came in a bit hot," said Collin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research (SCFR). "That marks the second straight 0.3% monthly increase, bringing up the three-month annualized rate of change to 3.4%." Short-term Treasury yields jumped, with the 2-year Treasury note yield rising more than 10 basis points to 4.89%. Short-term yields are closely linked to Federal Reserve policy expectations, and rate hike odds for this month surged to 46%, according to Bloomberg, from around 20% before CPI.
Major indexes flattened Tuesday with trading subdued ahead of CPI. Buying interest seemed slim, with little enthusiasm toward testing recent record highs. Five of 11 S&P 500 sectors rose, down from eight Monday, and energy led again. Financials fell 0.4% on a big earnings day. Tomorrow brings September retail sales and the Producer Price Index. Analysts expect retail sales growth of 0.3%, while consensus for PPI is 0.5%.
Three things to watch
- CPI deeper dive: Annual headline CPI of 3.7% outpaced expectations of 3.6%, while core annual CPI of 2.6% topped 2.5% expectations. The August increases were 3.4% and 2.4%, respectively, meaning the numbers are going opposite of the way the Fed wants. Core services CPI rose about 0.4% for the month as shelter prices jumped. Recreation, education, airline fares and medical care prices also rose in September. The unpleasant data followed New York Fed President John Williams telling Bloomberg Tuesday that one more rate hike is appropriate this year and he doesn't see the need for another in 2027. He expects inflation to cool next year. The Fed's Beige Book comes out this afternoon, which could provide insight on local business and consumer conditions around the country and how they're affected by rising prices. Tomorrow night features Fed Chairman Kevin Warsh participating in a discussion with the International Monetary Fund (IMF) managing director, but it's unclear if he'll touch on policy issues.
- Term premium highest in a decade: It's not just oil prices or a hawkish Fed driving long-term yields higher. An increasing Treasury term premium has also played a role. The 10-year Treasury term premium reached its highest level in more than a decade earlier this month. The Treasury term premium is the extra compensation investors demand for the risks of holding longer-term government bonds. Its rise may reflect concerns about the growing national debt, persistent inflation, and geopolitical uncertainty. Further increases could keep long-term yields elevated even if the Fed softens its stance. That's something investors might want to watch moving forward. Still, most of the spike this year is due to the expected change in the short-term rate rather than the term premium. "Unless the market begins to expect more rate hikes than the three the fed funds futures market currently implies, expected short-term yields might not pull long-term yields much higher," Martin said.
- Tech earnings start to make an appearance: Tech firms ASML (ASML) today and Taiwan Semiconductor Manufacturing (TSM) report tomorrow and could provide more insight into the underpinnings of the AI market, since their components are integral to the data center buildout. TSM is the world's largest chip maker and ASML has a monopoly on extreme ultraviolet lithography machines used to mass produce patterns on silicone. Both firms have seen strong demand so far this year. Results from ASML and TSM could hint at the strength of AI spending by mega caps like Meta Platforms (META) and Tesla (TSLA), which report next week. Meta and Tesla's growth depends a great deal on AI adoption and both are snapping up chips quickly. Any sign of a slowdown in spending by either could upend the chip market, which is already struggling lately over the high price and scarcity of memory chips. China appears to be eager to fill the vacuum with more competitively priced chips, while South Korea's Samsung is also raising capacity.
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On the move
- Bank of America (BAC) slipped 4% as quarterly earnings and revenue missed consensus. A 17% drop in bond trading revenue year-over-year was a sore point for investors, and so was a $1.2 billion charge related to fines from the Treasury Department for money laundering and sanctions violations.
- Morgan Stanley (MS) edged higher on earnings and revenue that surpassed analysts' expectations, driven by better-than-expected equities trading revenue.
- ASML edged lower despite strong quarterly results. The maker of technology used in chip building raised its sales forecast, citing continued strong demand as the AI buildout extends and orders arrive for as far out as 2029 and 2030.
- Blackrock (BLK) jumped 5% on earnings that topped Wall Street's estimates as well as attracting more than $205 billion in net-new client money, well above analysts' expectations.
- Dell (DELL) dropped nearly 3% on a downgrade to equal weight from overweight by Barclays, which cited valuation as one concern. Barclays also downgraded Dell competitors Hewlett Packard Entreprise (HPE) and NetApp (NTAP).
- Albertsons (ACI) slipped nearly 4%. Shares got downgraded by Bank of America to underperform from neutral despite what the firm called a "solid" quarter. Lack of a fiscal outlook from ACI helped shape the downgrade.
- Memory chip stocks fell for a third day, led down by SK Hynix (SKHY) and Sandisk (SNDK). This came after another decline for South Korea's tech-dominated market. Other AI and chip-related stocks down 1% or more early included Intel (INTC), CoreWeave (CRWV), and Marvell Technology (MRVL).
- JB Hunt Transport (JBHT) dropped almost 4%. It warned recently that high fuel costs could hurt third quarter earnings due tomorrow.
- Crude oil (/CL) rose about 1% early after the International Energy Agency (IEA) reported that diesel supply constraints could continue well into next year and worries mounted about possible attacks on Gulf shipping ahead of the U.S. election.
- Many of the large banks reporting Tuesday saw their shares drop. Citigroup (C) suffered most, down 5%, possibly hurt by weakness in its markets revenue that fell 13% sequentially.
- Applied Materials (AMAT) fell almost 7% Tuesday after the chip equipment maker declined to give a forecast for the wafer fab equipment industry on the company's investor day, Barron's reported.
- Meta Platforms (META) rose another 2.6% Tuesday a day after revealing new AI offerings.
- SpaceX (SPCX) dropped more than 4% Tuesday, hurt by overall weakness in AI and the South Korean chip market.
More insights from Schwab
What's up in D.C.: The latest Schwab Washington: What to Watch Now report examines more attempts by the Trump administration to fire Fed Gov. Lisa Cook, Trump accounts, vacancies at the Securities & Exchange Commission (SEC) and the possible market impact of next month's mid-term elections.
Chart of the day
Data source: Nasdaq, S&P Dow Jones Indices. Chart source: thinkorswim® platform.
Past performance is no guarantee of future results.
For illustrative purposes only.
The S&P 500 bull market (SPX—candlesticks) turned four yesterday, seen in this four-year chart. Since the October 12, 2022 low, the benchmark index has more than doubled, roughly 22% annualized, despite a bond market selloff, the fastest Fed hiking cycle in four decades, war, hot inflation, and deficit worries. The tech-heavy Nasdaq-100® (NDX—blue line) has outpaced the SPX during that time, but the S&P 500 Equal Weight Index (SPXEW—purple line) is well behind. It measures every component equally rather than by market capitalization.
The week ahead
October 15: Expected earnings from Taiwan Semiconductor Manufacturing (TSM), PNC Financial Services (PNC), U.S. Bancorp (USB), JB Hunt Transport Services (JBHT), and September retail sales, September Producer Price Index (PPI) and core PPI, and initial jobless claims.
October 16: Expected earnings from Travelers (TRV) and Truist (TFC), and industrial production for September.
October 19: Expected earnings from Fifth Third (FITB).
October 20: Expected earnings from GE Aerospace (CE), RTX (RTX), 3M (MMM), General Motors (GM), Northrop Grumman (NOC), Halliburton (HAL), Netflix (NFLX), Intuitive Surgical (ISRG), Chubb (CB), Capital One (COF), and United Airlines (UAL), and September housing starts and building permits.
October 21: Expected earnings from Meta Platforms (META), Tesla (TSLA), Lam Research (LRCX), Texas Instruments (TXN), Philip Morris (PM), Thermo Fisher Scientific (TMO), Abbott Laboratories (ABT), NextEra Energy (NEE), Danaher (DHR), AT&T (T), CME Group (CME), Vertiv (VRT), Elevance Health (ELV), Moody's (MCO), SAP SE (SAP), IBM (IBM), CSX (CSX), United Rentals (URI), and Teradyne (TER).
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