Markets Tumble as Inflation Surges and AI Stocks Retreat

Energy costs served as the primary catalyst for the inflation spike, with gas prices surging 9.1% over the previous month. This broad-based price pressure eroded market sentiment, pushing the Russell 2000 index into correction territory—more than 10% below its yearly peak. While bond yields initially spiked following the data release, they moderated as tech stocks faced heavy selling pressure. The PHLX Semiconductor Index marked its sixth consecutive day of losses, driven by concerns that rising borrowing costs will stifle the debt-funded expansion plans of high-growth AI firms like Oracle and Marvell Technology.

Financial sector performance mirrored the broader gloom, even as results diverged. Morgan Stanley shares fell 2.75% despite beating profit estimates, while Bank of America dropped 4.8% after missing forecasts and absorbing a $1.2 billion regulatory penalty. Amid the volatility, Apple provided a rare bright spot, rising 0.5% to join Nvidia as the only companies with a market capitalization exceeding $5 trillion. Meanwhile, the labor market faced its own challenges as Netflix announced a 6% workforce reduction, cutting approximately 1,000 jobs to combat slowing growth and intensifying competition.