By Tharuniyaa Lakshmi and Purvi Agarwal
Oct 14 (Reuters) - The S&P 500 and the Nasdaq tumbled on Wednesday as banks slid after quarterly results and hot inflation data boosted bets of interest rate hikes, pressuring beneficiaries of the AI buildout sensitive to higher borrowing costs.
Expectations for higher interest rates extending into next year dealt a sharp blow to some of the market's biggest gainers of 2026.
Hyperscaler Oracle lost 7.8%, while neocloud firms CoreWeave and Nebius fell over 11%
each.
AI server makers Dell and HP lost 11.5% and 7.8%, respectively, after Barclays downgraded the stocks to "equal-weight" from "overweight".
Chip stocks were also under pressure, with the Philadelphia SE Semiconductor index set for its sixth session of declines, its longest losing streak since May 2025.
Concerns over higher borrowing costs stemmed from data showing US consumer prices accelerated more than expected in September, amid surging gasoline prices.
Traders now see a 60% chance of a quarter-point increase, compared with a 21.6% chance before the figures, according to LSEG-compiled data.
"The more important question is whether firmer core inflation is enough to alter the Fed's path. Combined with continued economic resilience, this suggests the Fed's job is not yet done," said Seema Shah, chief global strategist at Principal Asset Management.
"We expect further hikes in December and early 2027 before the Fed can be confident that inflation is on a sustained path back to target."
At 12:30 p.m. ET, the Dow Jones Industrial Average fell 154.07 points, or 0.30%, to 51,516.03, the S&P 500 lost 86.06 points, or 1.10%, to 7,719.86 and the Nasdaq Composite lost 452.67 points, or 1.66%, to 26,751.71.
Markets also digested another round of bank earnings. Bank of America was down 5.3% after the lender's profit fell in the third quarter as it set aside $1.2 billion to cover regulatory fines, while Morgan Stanley dipped 3.5% despite a rise in quarterly profit.
The S&P 500 Banks index touched its lowest level in over four months, before paring some losses.
Asset manager BlackRock was up marginally after reporting a jump in third-quarter profit.
However, sectors considered traditionally defensive rose, with consumer staples and healthcare stocks up 1.7% and 2.1%, respectively. Gains in these stocks contained the Dow's declines.
The Fed has time to wait and see how markets and the economy evolve after its September rate rise before deciding further action, its Vice Chair for Supervision Michelle Bowman said.
Remarks from Richmond Fed President Tom Barkin and the Fed's Beige Book report on regional economic conditions are also due late in the day.
Among others, Bending Spoons rallied 40% after Berkshire Hathaway invested another $330 million in the owner of Vimeo and AOL, a big endorsement from the high-profile investor whose moves traders closely follow.
Declining issues outnumbered advancers by a 4.42-to-1 ratio on the NYSE and by a 3.78-to-1 ratio on the Nasdaq.
The S&P 500 posted 14 new 52-week highs and 11 new lows while the Nasdaq Composite recorded 19 new highs and 434 new lows.
(Reporting by Tharuniyaa Lakshmi and Purvi Agarwal in Bengaluru; Editing by Devika Syamnath)
