Hot CPI, 5% yields, and the Nasdaq finds out

The take

The CPI print wasn't a disaster. It was a tenth of a point too hot on almost every line, landing in a market where the 10-year yields more than 5%. That's enough. Rate-sensitive, long-duration stuff got sold hardest, and the Dow mostly shrugged. My read: this was a repricing of how long rates stay high, not a panic.

What's driving it

September CPI rose 0.6% on the month and 3.7% from a year earlier, against 3.6% expected. Core rose 0.3% on the month and 2.6% on the year, both a tenth above forecasts [1]. Gasoline jumped 9.1% in the month and made up more than half of the headline increase [2].

The bond market did the talking. The 10-year Treasury yield rose more than 6 basis points to about 5.28% [1]. The odds of a Fed hike at the October 27–28 meeting rose to roughly 44–49% on CME FedWatch, up from 22% before the report; the Fed already hiked in September to 3.75–4.00% [2].

In one intraday snapshot, the Russell 2000 was down 2.16%, the Nasdaq Composite down 1.91%, the S&P 500 down 1.17% and the Dow down only 0.21% [1]. Before the cash open, S&P 500 futures had already dropped from around 7,870 to about 7,828 [3].

Oil isn't helping: WTI topped $95 a barrel [4] and Brent was back above $106 earlier in the day [5]. Bank of America fell after regulators fined it more than $1.2 billion over anti-money-laundering failures .