Hot and Cold. A hot September inflation report cooled off the stock market Wednesday as bond yields spiked and raised investor concerns that the Federal Reserve could hike rates again this month.

The S&P 500 dropped 1.1% while the Dow Jones Industrial Average declined about 0.1%.

Tech bore the brunt of the damage, with the Nasdaq Composite down 1.9% at the end of the trading session.

Chip stocks got particularly hammered. The iShares Semiconductor ETF closed lower for a seventh consecutive trading session, marking its longest losing streak since a seven-day slump in May 2025. Advanced Micro Devices fell 5.7% while Intel was down 4.6% and Marvell Technology declined 8.7%.

Another round of big banks reported on Wednesday, but their stock trajectories looked similar to their predecessors yesterday. Bank of America’s profits disappointed, sending its stock down 4.7%, while shares of Morgan Stanley declined 2.7%, even as quarterly earnings were better than expected.

Other notable losers on the day were Dell Technologies and Skydance, with each stock falling more than 10%.

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The Hot Stock: UnitedHealth Group Incorporated +4.7%
The Biggest Loser: Dell Technologies -1.3%

Best Sector: Health Care +2.4%
Worst Sector: Information Technology -2.6%

The fact that Meta Platforms’ Muse AI agent has been a hit with both consumers and Wall Street has been well established at this point. Shares of the Facebook parent company have risen 20% since it introduced Muse, and the Muse app has quickly become one of the most popular app downloads.

Meta added to the excitement on Monday by unveiling a new pair of AI models, dubbed Muse Wonder and Muse Wonder Full, intended to rival top offerings from OpenAI and Anthropic.

How Meta will monetize Muse, however, remains an open question, one that is concerning investors as Wall Street increases estimates of how much Meta will spend on AI next year.

The consensus currently forecasts Meta’s 2027 capital spending at $193.88 billion, according FactSet. Since the end of August, that estimate has by risen only about 1.2%. But some recent individual estimates have been revised much higher.

Guggenheim analyst Michael Morris on Wednesday raised his estimate for Meta’s 2027 capital spending to $225 billion, up from his previous $203 billion. “The prevailing concern is that a rival leapfrogs Muse or Wonder and locks Meta into a perpetual over-investment cycle,” Morris wrote in the research note.

“We expect free cash flow to remain pressured through 2028 with return to positive growth beginning in 2029,” he added.

Bank of America analyst Justin Post acknowledged in a Wednesday research note that increased investor concerns around 2027 capital spending could be a risk for the stock, particularly if growing Muse usage requires additional infrastructure capacity. But Post still has a Buy rating on the stock with a price target of $810.

Wall Street will likely get a firmer answer on capital spending when Meta reports third-quarter earnings on Oct. 21. Until then, whether Meta’s hot streak continues is anyone’s guess.

Alcoa, Bank of New York Mellon, Charles Schwab, Interactive Brokers Group, J.B. Hunt Transport Services, Marsh & McLennan, PNC Financial Services Group, Prologis, Taiwan Semiconductor Manufacturing, and U.S. Bancorp announce quarterly results tomorrow.

The Census Bureau reports retail sales data for September. Economists forecast a 0.3% month-over-month gain, after a 1.1% jump in August. Excluding autos and gas, sales are seen rising 0.2%.

The BLS releases the producer price index for September. The consensus call is for a 5.3% year-over-year jump, while the core PPI is expected to rise 4.4%. This compares with increases of 5.4% and 4.6%, respectively, in August.

— Dan Lam

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