The number came in at 8:30 this morning. Annual inflation: 3.8%. The highest since May 2023. Core — the one that strips out food and energy — came in at 2.8%, above the 2.7% the Street expected. The chips that carried the index to records yesterday reversed hard. Qualcomm had its worst day since 2020. Intel gave back 9%. And the S&P 500, which was sitting at an all-time high at yesterday's close, finished in the red. The rate-cut math that Friday's wage data kept alive just died on the table.

CPI day, and it showed. The S&P 500 fell 0.2% to close at 7,401. The Nasdaq dropped 0.7% to 26,088 — the chip stocks that carried it to records gave most of it back. The Dow was the exception, up 56 points to 49,761, held up by defensive names like Merck, Walmart, and J&J. The Russell 2000 gained 0.3%.

The inflation number did the damage at the open. Headline CPI rose 0.6% for the month, putting the annual rate at 3.8% — the highest since May 2023 and above the 3.7% the Street expected. Core CPI — which strips out food and energy to show what's happening underneath — rose 0.4% for the month and 2.8% year over year. That core number was the problem. The Street expected 0.3%. It came in at 0.4%. That's not a rounding error when the Fed is watching every tenth of a point.

The chips got hit hardest. Micron fell 3.6% — after gaining 37% last week and 53% last month. Qualcomm lost 11%, its worst session since 2020. Intel gave back 9%. AMD fell 2%. The semiconductor index is still up 60% on the year, so the selling barely dented the run. But the names that led the index to records yesterday were the ones that fell the most today. That's the rotation starting.

Oil went the other way. WTI jumped 4.2% to settle at $102.18. That's back above $100 for the first time since last week's peace-trade selloff. CNN reported that some Trump aides are now considering renewed military action against Iran. The ceasefire is thinning. The government released 53.3 million barrels from the Strategic Petroleum Reserve — part of a coordinated IEA effort to release 172 million total — and the price still went up. When the SPR can't hold the barrel down, the supply problem is real.

Kevin Warsh cleared the Senate today, 51-45, moving one step closer to becoming Fed chair. Apple hit a new record close, up 0.6% — one of the few tech names that went up. Wendy's jumped 9% on reports that Nelson Peltz's Trian Fund is looking to take it private. Hims & Hers fell 15% on a surprise quarterly loss. Cerebras Systems — the AI chip company — prices its IPO tomorrow. That timing, on the day the chip rally cracked, is something.

Stocks don't price today. They price the next six to twelve months. And what the market priced today is the end of the rate-cut story that powered the last two weeks.

Here's the chain. Friday's jobs report showed 115,000 new jobs with wages growing slower than expected. That was the combination the market wanted — strong hiring, cooling pay. It meant the Fed could talk about cuts without looking reckless. The S&P ran to a record. The Nasdaq gained 4% in a week. The whole thesis was: the economy is holding, wages are cooling, the Fed gets room.

Today's CPI blew that up. Headline inflation at 3.8% is moving in the wrong direction. Core at 2.8% — above expectations — tells the Fed that the oil shock from the Strait isn't just pushing up gas prices. It's leaking into everything else. Services. Shelter. Transport. When core inflation accelerates while headline is already at a three-year high, it means the problem is getting wider, not staying contained. The CME FedWatch tool is now pricing a 98% chance the Fed holds rates steady through June and most of the year. And for the first time in this cycle, there's a 30% chance of a rate hike by December.

I've seen this script before. Spring 2022. Inflation was running at 8%. The market kept rallying on hopes the Fed would pivot. Every soft data point got treated as proof that cuts were coming. Then a hot CPI print in February 2022 killed the pivot story, and the S&P fell 20% over the next four months. I'm not calling a 20% drop. The economy is stronger now and earnings are growing. But the pattern is the same: when the market prices in rate relief and then gets told inflation is accelerating, the growth trade cracks first and the rest follows if the data doesn't improve.

The forward-looking read: Nvidia reports May 20. That's the next test for whether the chip rally was about real demand or just momentum. If Nvidia guides above $45 billion and margins hold, the semiconductor story survives even without rate cuts. If it shows the same supply constraints Arm warned about — or if the demand picture softens — the 60% year-to-date run in the SOX index becomes the kind of move that needs to give some back. PPI comes out tomorrow. If producer prices confirm the CPI heat, the hike talk gets louder.

Three things I'm watching:

Producer prices are the next inflation read. If PPI confirms the CPI heat — core above 0.3% — it cements the "higher for longer" story and the hike probability rises. If PPI comes in soft, the market can argue that today's CPI was an energy-driven one-off and not a broader inflation problem. Watch core PPI. That's the number that tells you whether the inflation is spreading beyond the gas pump.

Sixteen executives flew to Beijing with the president, including Elon Musk. Technology and rare earths are on the agenda. Any deal on chip export restrictions moves the semiconductor sector. Any progress on rare earth supply helps the EV and battery names. If the summit produces friction instead of deals, the tech selloff from today extends into Thursday.

Eight days out. The most-watched print on the calendar. Today proved the chip rally can reverse fast — Qualcomm's worst day since 2020, Intel −9%, Micron −3.6%. Nvidia is the one name that can restart the trade or confirm the top. Data center revenue above $45 billion with gross margins holding above 70% keeps the story alive. Anything below that, after today's CPI, and the 60% SOX rally this year starts giving back in earnest.

Inflation is heading the wrong way. The chips that carried the tape cracked on the same day. And the rate-cut story that powered the last two weeks just got a three-year-high CPI print to answer for. Nvidia in eight days decides what comes next.

That's it for today. See you tomorrow after the close.