Key Highlights
- Wall Street’s main indexes fell as a hotter-than-expected inflation report weighed on sentiment.
- The S&P 500 and Nasdaq pulled back from record highs, with consumer prices rising at a brisk pace in April.
- Earnings season has supported market sentiment, but the ongoing negotiations between Washington and Tehran remain a concern.
- Traders had expected two rate cuts, but now anticipate the Federal Reserve to keep interest rates steady through the end of the year.
The Dow Jones Industrials: A Fall from Grace
The Dow Jones Industrial Average fell 297.98 points, or 0.60%, to 49,406.49, as Wall Street’s main indexes edged lower on Tuesday.
The S&P 500 lost 43.98 points, or 0.57%, to 7,368.86, while the Nasdaq Composite dropped 240.76 points, or 0.92%, to 26,038.27.
Inflation: A Blunt Instrument
The Consumer Price Index increased by 3.8% in April on an annual basis, surpassing economists’ expectations of a 3.7% rise. “We believe the financial markets have been a little slow to appreciate the economic damage that is building with higher prices, oil prices, raw materials,” said Doug Beath, global equity strategist at Wells Fargo Investment Institute.
The spike in inflation has reinforced expectations that the Federal Reserve will keep interest rates unchanged for longer. “April had the highest S&P 500 returns since 2020. Obviously, earnings continue to exceed expectations. But I do think even though it (CPI) is a little bit higher than expected, it could be more important because of the fact the negotiations are still in limbo,” Beath added.
Stalled Negotiations and Rising Oil Prices
The ongoing tensions between Washington and Tehran remain a concern for market watchers as surging oil prices fuel worries of higher inflation. President Donald Trump said a ceasefire with Iran was “on life support” after Tehran rejected a U.S. proposal to end the conflict, keeping oil prices elevated at $70 per barrel.
The closure of the key Strait of Hormuz shipping route has been a cause for concern, as traders had expected two rate cuts according to CME Group’s FedWatch Tool. Now they expect the Federal Reserve to keep interest rates steady through the end of the year.
Market Reaction: Mixed but Mostly Downward
Chip stocks were mixed, with Nvidia rising 1.7% while Intel shares eased 2%. Qualcomm dropped 6% after hitting a record high in the previous session. Among other movers, Zebra Technologies jumped 15% after raising its annual sales growth forecast.
Hims & Hers Health tumbled 12.3% after missing Wall Street estimates for first-quarter revenue and posting a surprise loss.
Venture Global rose 4.7% after raising its annual adjusted core profit forecast.
Declining issues outnumbered advancers by a 3.14-to-1 ratio on the NYSE, and by a 2.69-to-1 ratio on the Nasdaq. The S&P 500 posted 8 new 52-week highs and 19 new lows while the Nasdaq Composite recorded 32 new highs and 81 new lows.