Wall Street's selloff entered a second day as the S&P 500 dropped 1.5%, extending Friday's tech-led rout with traders bracing for Wednesday's CPI report that could determine whether the Federal Reserve delivers another rate hike.
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S&P 500 extends selloff to 1.5% as AI rout deepens before CPI
Wall Street's selloff entered a second day as the S&P 500 dropped 1.5%, extending Friday's tech-led rout with traders bracing for Wednesday's CPI report that could determine whether the Federal Reserve delivers another rate hike.
The S&P 500 fell 1.5% on Tuesday, extending a selloff driven by AI stock weakness and positioning ahead of Wednesday's consumer price index report.
"This print has elevated tail risk, with a hawkish surprise generating a larger move than a dovish one," JPMorgan analysts led by Andrew Tyler wrote in a note, flagging that a core CPI reading above 0.35% month-over-month could trigger a 2% to 3% drop in the S&P 500.
The decline accelerated through the session after the benchmark briefly traded higher, with the Nasdaq Composite falling 1.9% as semiconductor stocks reversed early gains. Micron Technology swung from a 4.2% advance to a 4.9% loss, while the broader Philadelphia Semiconductor Index extended its pullback from last week's record. The Dow Jones Industrial Average lost 283 points, or 0.6%.
The selloff leaves the S&P 500 roughly 3% below its all-time high set a week ago, with the June 17 Federal Reserve decision looming. Fed funds futures now imply a 75% probability of at least one additional rate hike by year-end, up from 38% before Friday's stronger-than-expected jobs report, as resilient employment and elevated oil prices complicate the inflation outlook.
The weakness in AI names drowned out support from falling oil prices. Brent crude dropped 3.3% to $91.12 a barrel after briefly topping $98 last week, as Israel and Iran signaled a de-escalation in hostilities. The decline in energy costs lifted airline stocks, with Delta Air Lines rising 1.4% and American Airlines climbing 1.8%, though the sector remains pressured by jet fuel costs that surged 78% year-over-year in April.
The 10-year Treasury yield edged down to 4.55% from 4.56%, but remains well above its 3.97% level from before the Iran conflict escalated. The yield on the policy-sensitive two-year note held near 4.16%, its highest since February 2025, as traders priced in 21 basis points of rate hikes through year-end.
AI Supply Wave Adds to Pressure
The selloff comes as a wave of mega equity issuance threatens to absorb liquidity. SpaceX is set to raise about $75 billion in what would be the largest IPO in history, while OpenAI filed confidentially for its own listing. Alphabet plans to sell $85 billion of stock next quarter. Goldman Sachs estimates that initial floats averaging under 10% typically balloon to around 46% within a year, implying roughly $1 trillion of additional equity supply by 2027 as lockups expire.
CPI Crossroads
Wednesday's CPI report is the near-term catalyst. The Dow Jones consensus estimates call for core inflation to rise 0.3% month-over-month, with the headline rate accelerating to 4.2% year-over-year from 3.8%. JPMorgan's most likely scenario — core inflation of 0.25% to 0.3% — would likely keep the S&P 500 in a range of down 0.5% to up 0.75%. A cooler-than-expected reading of 0.2% or lower could trigger a 1.5% to 2% rally.
Bank of America's Savita Subramanian advised clients to take profits, flagging that 70% of the firm's bear-market signposts have triggered. The S&P 500 trades rich versus tech-bubble metrics on eight of 20 measures, she wrote, with high price-to-earnings names leading low-multiple stocks by the widest margin since February 2000.
This article is for informational purposes only and does not constitute investment advice.
