US Inflation Data Hits Markets Hard, S&P and Nasdaq Suffer Losses

US inflation data for April 2026 came in hotter than expected on May 12, with headline CPI rising 3.8% year-over-year — its highest reading since May 2023 — and 0.6% month-over-month. The release sent shockwaves through equity markets, with the SPY S&P 500 falling 0.4% and the Nasdaq Composite declining 1.0% on the session.

In this context, the hot inflation data is seen as supporting a 'higher-for-longer' stance from the Federal Reserve, with traders raising odds of a rate hike by year-end 2026 to roughly 30% per CME Group futures pricing, effectively wiping out rate-cut expectations for the year. The data also complicates the position of newly confirmed Fed Chair Kevin Warsh, who had previously advocated for lower rates.

Chip stocks bore the brunt of the selling, with semiconductor names among the Nasdaq's hardest-hit components. Energy prices were a key driver of the inflation shock — gasoline rose approximately 28% annually — while shelter costs climbed 3.3% year-over-year, suggesting inflation is becoming more broadly entrenched beyond volatile energy components and complicating the Fed's policy path into the second half of 2026.