Wall Street's main stock indexes fell on Wednesday after the latest inflation reading beat expectations of further interest rate cuts from the Federal Reserve, while Democrat Kamala Harris' chances of winning the presidential election rose following the televised debate.
In recent trading, the Dow Jones Industrial Average fell 635 points, or 1.6%, to 40,102. The S&P 500 was down 1.4% and the Nasdaq was down 1.2%.
U.S. consumer prices rose slightly in August, but underlying inflation remains somewhat firm, which could discourage the Fed from delivering a half-point rate cut next week.
“The Fed would have liked to see weaker numbers to justify a 50 basis point cut at its next meeting, but this data likely makes it more likely the Fed will cut rates by 25 basis points,” said Jason Pride, head of investment strategy and research at Glenmade.
According to the Labor Department's Bureau of Labor Statistics, the Consumer Price Index (CPI) rose 0.2% in July and also rose 0.2% last month.
The core index, which excludes volatile food and energy items, rose 0.3% from the previous month, beating the expected 0.2% increase.
Traders see an 85% chance of the Fed cutting interest rates by 25 basis points. CME FedWatch.
Market sentiment was also driven by political developments after Harris put Republican rival Donald Trump on the defensive during Tuesday's heated presidential debate.
After the debate, the online betting site PredictIt saw the odds of Trump winning fall by 6 cents to 47 cents, while the odds of Harris winning rose from 53 cents to 57 cents.
Stocks expected to do well under President Trump fell, including cryptocurrency and blockchain-related stocks and prison operators. Trump Media and Technology Group plunged 17%.
Meanwhile, solar power stocks Sunrun and SolarEdge Technologies, which are expected to benefit from a Harris administration, rose more than 7% each.
The debate provided little clarity for Wall Street on major policy issues, but some market watchers said Ms Harris' proposal to raise corporate taxes could hit corporate profits, while Mr Trump's tough stance on tariffs could spur inflation.
Semiconductor stocks helped limit losses on the Nasdaq, with the Philadelphia SE Semiconductor Index rising 1.2% as shares of industry giant Nvidia Inc. rose 3.5%.
Among other stocks, video game retailer GameStop Corp. slumped 12% after it filed for an initial public offering of up to 20 million shares and reported lower second-quarter revenue.
Shares in lithium mining companies surged after Chinese battery giant CATL said it plans to adjust its lithium carbonate production in Yichun in light of recent market conditions. Shares in Albemarle, one of the world's largest lithium miners, rose 13%.
