The S&P 500 slipped 0.48% on Sept. 15, a day before a Federal Reserve meeting most economists now expect to end in a rate hike. Persistent inflation tied to tariffs and the AI buildout has pushed the odds of tighter policy higher, and a hike could force investors to rethink valuations near the second-priciest level in stock market history.
Indices drop ahead of the Fed decision
The S&P 500 fell 0.48% to close at 7,619.98 on Sept. 15, a drop of 37.00 points. The Dow Jones Industrial Average dropped 0.29% to 52,421.20, and the Nasdaq Composite lost 0.56% to 26,186.41.
These declines come as most financial institutions and economists now expect a Federal Reserve rate hike at the Sept. 16 meeting, according to aggregated estimates cited in the report. Persistently elevated inflation has driven that shift in expectations.
Tariffs and the AI buildout are pushing prices higher
Trailing 12-month U.S. inflation reached a three-year high of 4.2% in May. President Trump's tariff policy, which imposed sweeping tariffs on more than 80 countries in late July, is adding duties to unfinished imported goods such as steel, which can raise domestic production costs and consumer prices.
The Trump-led Iran war is pushing up prices on two fronts as well. Iran's closure of the Strait of Hormuz has driven energy prices higher, and core inflation data suggest the war's price effects have spread beyond the energy sector. The Federal Open Market Committee has also cited artificial intelligence infrastructure demand as a source of higher prices, since the supply-demand mismatch for AI hardware is giving chipmakers outsize pricing power.
A hike could unsettle richly valued AI stocks
The AI data center buildout remains the top catalyst behind gains in the Dow, the S&P 500, and the Nasdaq, and it is being financed partly with debt. If the Fed raises borrowing costs on Sept. 16 as expected, the increase could slow that buildout.
That backdrop leaves the stock market at its second-priciest valuation in history, fueled by lofty AI growth expectations. If growth forecasts come down even marginally because of higher lending rates, it could force investors to rethink the valuations assigned to AI stocks.
Since President Trump's second term began, the S&P 500 has gained 28%, the Dow has gained 21%, and the Nasdaq has gained 34%. The Sept. 16 Fed decision is the catalyst that could put those gains at risk.
Source: Fool
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