S&P 500 and Nasdaq Composite post sharpest one-day drops since July

The broad-market S&P 500 fell 1.10% on Wednesday, while the Nasdaq Composite shed 1.88%. Both indexes posted their worst single-session declines since July, Barron's reports. The blue-chip Dow Jones Industrial Average posted a smaller decline of 48.6 points, or less than 0.1%.

The indexes nevertheless closed slightly above their intraday lows: at one point, the Nasdaq Composite was off 2.2%, while the Dow Jones had lost 0.6%. Tech stocks again bore the brunt of the losses, particularly chip and processor makers: the iShares Semiconductor ETF fell for a seventh consecutive session, Barron's notes.

“I just think the algos are running the show today, and they're selling the hell out of everything technology,” reckons KKM Financial founder and CEO Jeff Kilburg. “Ultimately, I think it's healthy, it's just all these moves are exaggerated because we're still so close to record highs.”

One catalyst for the negative market reaction was the release of the U.S. September consumer price index, which came in above expectations. Treasury yields rose following the print. While stocks continued to slide during the session, bond yields somewhat back off their highs.

Additional pressure came from the Fed's Beige Book, a report on economic conditions across the 12 Federal Reserve districts. The report had a “stagflationary flavor,” Rosenberg Research's Robert Embree wrote, according to Barron's.

“The Beige Book is delivering a distinctly uncomfortable message to the Federal Reserve,” he believes. “Certainly, it strongly undercuts the narrative of a ‘solid’ economy. And although inflation is a concern, the pace of wage growth appears little changed from September, and overall labor market sentiment is weaker. Nothing in this report that gives the hawks a winning argument without seeing more data.”

The latest economic data raises the stakes for September's producer price index, due out on Thursday, Barron's writes.