The stock market stumbled on Wednesday as investors digested a softer-than-expected inflation report and assessed a US-China plan to salvage their trade truce. The Dow Jones Industrial Average was flat, losing just 1 point, while the S&P 500 slipped under 0.3%. The tech-heavy Nasdaq Composite led the declines, falling roughly 0.5%.
Before the markets opened, there was a muted response to news of a US-China agreement aimed at getting their Geneva tariff truce back on track. President Trump stated that the deal should resolve issues between the two countries regarding rare earths and magnets. However, the deal was perceived as lacking specifics about export curbs and tariff levels.
Consumer inflation data released before the bell showed that the Consumer Price Index (CPI) increased by 0.1% month-over-month in May, compared with the 0.2% rise expected and the 0.2% increase in April. On a “core” basis, which excludes volatile food and energy costs, the May CPI rose 2.8% year-over-year, matching April’s rate.
stocks stagger amidst mixed inflation data
The mild inflation reading increased the odds of a September interest rate cut, with markets pricing in a 57.2% chance, up from 53.5% a day earlier. Treasury yields also fell, with the benchmark 10-year yield declining to 4.41%. Veteran market manager Doug Kass pointed out that despite tame inflation figures, the Fed’s dual mandate of balancing inflation and unemployment has put it in a tight spot.
Following a series of rate cuts in the latter part of 2024, hopes for further cuts in 2025 have been dashed amidst the persistent threat of inflation driven by tariffs. The mixed performance of the CPI report has led some to believe that the tariff impact on inflation may be overblown, temporarily boosting stock market optimism. However, Kass warned that absent significant tariff relief, companies absorbing these additional costs will see earnings pressure, providing little impetus for a robust market rally.
Ultimately, the market seems to have already factored in a better-than-expected core CPI. The concerns about companies facing pressure from higher costs and tariffs mean that profit margins may suffer for the remainder of the year. As a result, the S&P 500 might face further struggles absent new, positive developments to drive it higher.
