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Wall Street spent the week swinging between relief and worry. A sharp rally on Monday gave way to a pullback on Tuesday, when a hotter-than-expected inflation report landed just as Federal Reserve officials were talking openly about raising interest rates again.
The swings came on the heels of the S&P 500’s biggest weekly drop since April 2025.
Hot Inflation Data Revives Rate-Hike Bets
The Consumer Price Index rose 0.4% in October, the Labor Department said, above the 0.3% gain that economists polled by Reuters had expected. Core prices, which leave out food and energy, rose 0.3%, against a forecast of 0.2%.
Traders now see an 84% chance that the Fed raises rates by a quarter point in December, according to Yahoo Finance, and bets on a half-point move jumped from 0% to 15% in a day. Fed Governor Christopher Waller said the central bank should raise rates in December even if inflation had cooled last month, and should consider a half-point hike if the picture worsens. Dallas Fed President Lorie Logan said the Fed needs at least two more quarter-point increases.
Not every official sounded as hawkish. Kansas City Fed President Jeff Schmid said he believes the current policy rate is “fairly accommodative,” while Fed Vice Chair for Supervision Michelle Bowman stopped short of calling for hikes but said inflation is the central bank’s top priority. You might also be interested in reading our piece on stocks that Wall Street analysts see as affordable.
Stocks Rebound, Then Stall
The Dow Jones Industrial Average fell 0.30% on Tuesday, the S&P 500 lost 0.38% and the Nasdaq Composite dropped 0.74%, and declining issues outnumbered advancers by 2.27-to-1 on the New York Stock Exchange. That gave back part of Monday’s rally, when the S&P 500 rose 2.35% for its biggest daily gain since April 8 as a drop in oil prices tempered inflation fears. On Tuesday, shorter-term Treasury yields jumped after the report and the US dollar strengthened.
Last week’s selloff followed a sweeping Democratic victory in the US midterm elections, which fed concerns that new regulations could dent the AI trade. For another angle on where analysts see room to run, see our list of NYSE stocks with huge upside potential.
James McCann, senior economist at Edward Jones, told Reuters that “there are some fears that underlying price pressures are starting to build again.” The Labor Department releases producer prices on Friday, and the odds of a December rate hike were above 80% before Tuesday’s report, according to CME FedWatch.
