The US consumer price index rose 0.4% in October, more than forecast, the Bureau of Labor Statistics reported yesterday. Core inflation, which excludes food and energy and is seen as the more important gauge for the Fed, also rose 0.3%, above the 0.2% economists expected.
The figure matters because of who reacted to it. Fed Governor Christopher Waller said before the release that he was leaning toward a quarter-point rate hike in December, but would consider a half-point if core inflation rose at least 0.3% in October. That is exactly what happened. Dallas Fed President Lorie Logan also said she sees a need for two more quarter-point increases. According to CME's FedWatch tool, the odds of a half-point hike in December jumped from nearly zero to about 14%.
The market reacted immediately. Stocks fell, and the 10-year US Treasury yield climbed back above 5%. The S&P 500 was also dragged down by the fall in Nvidia's stock, hit by the affair surrounding its CEO. The combination of rising rates and the flagship stock of the AI era in trouble is exactly the scenario tech investors feared.
Why are tech stocks especially sensitive to rates? Because their value rests on profits expected far in the future, and when rates rise, future money is worth less today. In addition, high rates make financing data centers more expensive, and many are built with debt. And when a safe government bond pays 5% a year, investors are less willing to take risks on growth stocks.
This is directly relevant to Israel. Israeli tech companies trade mainly on Nasdaq and raise money from US funds, so higher US rates hurt their valuations and how easily they raise money. And in a week when Anthropic is starting its roadshow ahead of one of the largest IPOs in history, the question of how much investors are willing to pay for future growth has suddenly become much less theoretical.
