Dow Edges Up as S&P 500 and Nasdaq Slip on Hotter-Than-Expected Inflation, Bank of America Shares Tumble

NEW YORK — The Dow Jones Industrial Average edged higher in early trading Wednesday, while the S&P 500 and Nasdaq fell after a report showed inflation running hotter than expected in September and Bank of America shares tumbled following a $1.2 billion regulatory penalty.

The Dow was up 59.82 points, or 0.12%, at 51,729.92 as of 9:56 a.m. Eastern time. The S&P 500 fell about 0.4%, and the Nasdaq composite dropped about 0.7%, extending recent losses in technology stocks.

The market had closed slightly lower Tuesday. The Dow fell 179.56 points, or 0.35%, to 51,670.99, the S&P 500 slipped 0.02% to 7,805.65, and the Nasdaq lost 0.15% to 27,204.38.

Inflation tops forecasts

The consumer price index rose 3.7% in September from a year earlier, above the 3.6% economists had expected, according to the Labor Department report released before the opening bell.

Core inflation, which excludes volatile food and energy prices, rose 0.3% for the month and 2.6% from a year earlier. Both figures exceeded economists' expectations of 0.2% and 2.5%, respectively.

The hotter-than-expected figures add pressure on the Federal Reserve, which has been weighing whether further interest rate increases are needed to bring inflation under control. Before the report, traders priced in about a 22% chance of a quarter-point rate hike at the Fed's meeting next week, according to the CME FedWatch Tool.

Treasury yields rose after the inflation data, reflecting concerns that the Fed may keep rates higher for longer or raise them further. Higher yields tend to weigh on stock valuations, particularly for technology and other growth companies.

Energy costs have been a key driver of inflation, with oil prices remaining above $100 a barrel amid tensions in the Middle East.

Bank of America slides

Bank of America shares fell sharply after the bank reported that its third-quarter profit dropped 17% from a year earlier. The results were weighed down by a $1.2 billion penalty from federal regulators and a slowdown in trading and investment banking revenue, which offset higher lending income.

The penalty, announced Tuesday evening by the Treasury Department, stemmed from failures in the bank's safeguards against money laundering and other illicit financial activity. Regulators said the bank failed to report more than $5 billion in suspicious transactions.

Excluding the penalty, Bank of America said it earned $8.1 billion, or $1.08 per share, with adjusted earnings per share rising 4% from a year earlier. The stock fell as much as 7% in early trading.

Mixed results from other financial firms

Morgan Stanley reported third-quarter results that beat Wall Street's expectations, with revenue of $20.34 billion. Its shares were slightly lower in early trading despite the stronger-than-expected results.

BlackRock, the world's largest asset manager, also beat expectations, sending its shares up nearly 5% in premarket trading.

The results continue a busy stretch of financial earnings. On Tuesday, JPMorgan Chase reported its first quarterly earnings miss in nearly three years, while results from Goldman Sachs, Citigroup and Wells Fargo were mixed.

Technology stocks under pressure

Technology shares extended their recent slide, weighing on the Nasdaq. Memory chip stocks continued to fall amid concerns about rising competition from China.

Chip equipment maker ASML reported record third-quarter sales and raised its full-year outlook on strong demand tied to artificial intelligence, but its shares fell in early trading.

Investors are awaiting results from Taiwan Semiconductor Manufacturing on Thursday for further signals on the strength of AI-related demand. The chipmaker is a key supplier to many of the world's largest technology companies.

Why the Dow outperformed

The Dow's modest gain contrasted with losses in the broader market, in part because the index is weighted by share price and includes fewer of the technology companies that have led recent declines. Gains in several of its components helped offset Bank of America's slide.

The divergence reflects a market caught between solid corporate earnings in some sectors and growing concern about inflation and interest rates.

Fed in focus

Investors will also watch for the Federal Reserve's Beige Book, a summary of economic conditions across the country, scheduled for release Wednesday afternoon. The report could offer further insight into how businesses are coping with higher energy costs and interest rates.

The Fed's next policy decision is scheduled for next week. Wednesday's inflation data is likely to factor heavily into that decision.

What's ahead

The producer price index, which measures inflation at the wholesale level, is scheduled for release Thursday. Earnings season will also continue, with Taiwan Semiconductor among the major companies reporting results.

Stocks remain near record levels despite recent volatility. The S&P 500 reached an all-time high earlier this month, and the Dow is up more than 12% over the past year.