US stock markets fell sharply Wednesday as inflation data showed consumer prices rose 4.2% in the latest Consumer Price Index report, marking a three-year high. The Dow Jones Industrial Average dropped more than 900 points, marking its worst single-day decline of 2026. The Nasdaq and S&P 500 also declined as investors reacted to the inflation figures and heightened geopolitical tensions.
The inflation surge came after the US and Israel launched their war on Iran, which triggered a significant increase in gasoline prices. The inflation rate had stood at 2.4% before the conflict began, but the closure of the Strait of Hormuz affected energy markets substantially. This represents the third consecutive monthly increase in inflation since the start of the Iran war.
Technology stocks led the market decline, with artificial intelligence companies experiencing particularly steep drops. Chip manufacturers saw significant selling pressure as investors reassessed valuations in the sector. The tech-heavy Nasdaq bore the brunt of the selloff as traders moved away from growth-oriented stocks. All of the "magnificent seven" AI-related stocks, including Nvidia, Amazon, Apple, Microsoft, Tesla, Alphabet and Meta, suffered one-day losses. Data analytics company Palantir slumped nearly 8% despite raising its revenue outlook the previous day.
Bank executives have warned that a serious stock market correction could lie ahead after a run of record highs led some companies to appear overvalued. Executives at Morgan Stanley and Goldman Sachs cautioned about potential market corrections, adding their voices to Jamie Dimon, the head of JP Morgan Chase, who warned in October about possible market crashes within six months to two years. An analyst at Deutsche Bank noted a "clear risk-off move" as concerns over lofty tech valuations hit investor sentiment.
Short-selling activity also contributed to market volatility. Investor Michael Burry, known for predicting the 2008 financial crash, bet against Palantir and Nvidia, sparking criticism from Palantir's chief executive and contributing to stock selling.
Asian markets followed the US declines on Wednesday, recording their sharpest slide in seven months as concerns about tech stocks spread. Indices in Japan and South Korea dropped more than 5% from record highs reached the previous day. European markets in the UK, France and Germany also dropped slightly Wednesday morning.
The cryptocurrency market reflected broader economic concerns, with bitcoin briefly dipping below $100,000 for the first time since June as investors withdrew money from riskier assets. Bitcoin had reached a record price of over $126,000 in early October before declining 3.7% during that month, its worst monthly performance in a decade.