US close: Stocks fall as inflation data fails to impress

US stock markets finished with moderate losses on Thursday, snapping four straight days of gains, after consumer price inflation failed to ease as expected last month, causing bond yields to surge.

Despite a subdued start, markets dropped into the red around lunchtime with the Dow Jones Industrial Average closing down 0.5%, and the S&P 500 and Nasdaq falling 0.6%.

The yield on a 10-year US Treasury note jumped 13.5 basis points to 4.699%, following several days of declines, after the Bureau of Labor Statistics revealed that the consumer price index rose by 0.4% in September, down from 0.6% growth in August but ahead of the 0.3% gain expected by analysts.

The year-on-year rate of headline inflation held stable at 3.7%, above the 3.6% forecast, though core inflation fell from 4.3% to 4.1%, as expected.

Richard Garland, chief investment strategist at Omnis Investments, said that the downward trend in core price growth should continue. "The service sector was the main culprit for surprisingly strong economic growth earlier this year, but that is now slowing and other data from the labour market suggest hiring and wage inflation are softening as expected. A November rate hike is hard to contemplate now."

However, with the producer price index on Wednesday also coming in hotter than expected, this week's data has made some traders uneasy – particularly since Thursday's initial jobless claims data pointed to continuing resilience in the US labour market. Initial claims held steady last week at 209,000, close to nine-month lows and at levels that are consistent with very few layoffs.

"Recent readings on jobless claims and the September jobs report are consistent with a labor market that is still relatively strong despite some signs of cooling," said Nancy Vanden Houten, lead US economist at Oxford Economics.

"Conditions in the labor market are playing a key role in Fed policy decisions. While the FOMC may refrain from further rate hikes, officials will need to see additional softness in the labor market before contemplating any cuts. We do expect a slowdown in job growth and a rise in the unemployment rate as the economy weakens and look for the Fed to begin cutting rates in the spring of 2024," the economist said.

Domino's fails to deliver

Pizza chain Domino's was out of favour after failing to meet revenue expectations in its third quarter, though profits were slightly ahead of forecasts.

Commenting on the results, Danni Hewson, head of financial analysis at AJ Bell, said that US consumers are "having to think carefully about the cost of their weekly meals, mixing in takeout treats with cheaper home cooked fare.

"But often market reaction is as much about the story being told about the business outlook as it is the basic numbers and Domino’s knows its customer, focusing on the deals it can offer up to cash strapped households. It also knows the tie-up with Uber is likely to bring new customers to their table who might have a bit more disposable income to splash, as it hopes to see improved figures for its delivery business going forward.”

Sector peers McDonald's, Yum! Brands and Chipotle Mexican Grill also finished lower.

Ford shares fell after the UAW union expanded where it was striking to include the automaker's SUV/pickup facility in Kentucky.

Microsoft inched lower after the software giant received a whopping $29bn tax bill from the IRS for back taxes.

Walgreens took a tumble after the pharmacy group missed fourth-quarter estimates and disappointed with profit predictions for the full year.