September’s CPI Came in Hotter Than Expected and Geopolitical Tensions Climbed. Stocks Fell.

Stocks fell on Wednesday after September's inflation reading came in hotter than expected and geopolitical tensions, particularly between the U.S. and Iran, remain high.

The Dow Jones Industrial Average dropped 0.09%, while the S&P 500 did so 1.10%. The tech-heavy Nasdaq Composite underperformed, plunging 1.88% as AI-related stocks continued to drag the index.

Traders believe there are higher chances that the Federal Reserve will hike rates in October's meeting after the inflation report, although they moderated their expectations throughout the day.

Chances now stand at almost 35%, compared to 22.1% before the figures were released, according to the CME Group's FedWatch tool. However, they touched 49% during the session.

The Bureau of Labor Statistics noted that inflation gained 0.6% last month. The annual figure stood at 3.7%, compared to the 3.6% expected by analysts.

More than half of the increase was explained by gas prices, which rose more than 9% last month.

"The energy index increased 5.2 percent over the month following a 2.1-percent increase in August. The shelter index rose 0.4 percent in September after rising 0.3 percent in August. The index for food was unchanged in September, as the index for food away from home increased 0.2 percent and the index for food at home fell 0.1 percent," BLS detailed.

Fed officials expected to hike rates again before the latest reading, according to the most recent minutes of the Federal Open Market Committee's (FOMC).

"Most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end," reads a passage of the document.

There are no signs that energy markets will get a reprieve soon. Two ships sunk in the Strait of Hormuz over the past day as Iran escalates attacks against ships it does not allow to transit through the waterway.

The ships in question are a container ship and a dry bulk carrier. They were hit by projectiles in separate incidents.

The development follows a report detailing that Tehran is resorting to new tactics to disrupt traffic in the waterway.

The tactics in question were not revealed by senior Iranian officials who talked to Reuters, but they seek to prevent the U.S. from bringing down oil prices ahead of the midterms.

They did say that the pace and type of attacks have changed and are targeting more vessels seeking to transit through the waterway.

A U.S. official told the outlet that Tehran has begun using unarmed spotters in small boats to find potential targets.

Iran had announced on Friday it would escalate hostilities, with the Iranian Revolutionary Guard Corps saying in a statement that it will now pursue vessels that don't transit the routes it has approved even outside the waterway and "throughout the entire region," and that "its punishment will be definitive."