U.S. Stock Markets React to Slowing Inflation and Trade Developments
NEW YORK — U.S. stocks experienced a mostly positive day on Tuesday, buoyed by a surprising inflation report indicating a slowdown in prices nationwide. The Standard and Poor’s 500 index increased by 0.7%, following a substantial upsurge earlier in the week after the U.S. and China agreed to a temporary 90-day pause in their trade war for negotiation purposes.
Index Performance Overview
While the Dow Jones Industrial Average saw a decline of 0.6%, the Nasdaq Composite surged by 1.6%, propelled primarily by advancements in artificial intelligence (AI) and technology stocks. The S&P 500 has rebounded significantly since it dipped 20% below its previous highs last month, amid hopes that easing tariffs by President Trump could prevent an economic downturn and curb rising inflation. The index is now within 4.2% of its all-time high achieved in February.
Inflation Trends and Economic Implications
The recent inflation report revealed a reduction in the rate from 2.4% in March to 2.3% in April. This is viewed as a positive sign as it moves the economy away from a scenario termed “stagflation,” where economic growth stagnates while inflation remains elevated. The Federal Reserve faces challenges in addressing this potentially harmful combination, as attempts to lower interest rates could exacerbate inflation levels in the short term.
Market Outlook and Investor Sentiment
Despite the current optimism, experts caution that inflation might rise again due to ongoing tariff implications. Analysts anticipate that the Federal Reserve will adopt a cautious stance, awaiting further data before deciding on potential interest rate reductions. This sentiment is echoed by Alexandra Wilson-Elizondo, co-head of Goldman Sachs Asset Management, who noted that markets are likely to respond to developments surrounding trade negotiations.
Louis Wong, from Phillip Securities Group, advised investors to remain vigilant and ready for any sudden changes in the trade landscape.
Tech Sector Highlights
On Wall Street, cryptocurrency exchange Coinbase Global saw its shares jump by 24% after it was announced that it would join the S&P 500 index next week, prompting many investment funds to add it ahead of the announcement. This move will replace Discover Financial Services, which is set to merge with Capital One Financial.
Key Players in the AI Market
The AI sector witnessed substantial gains, with Nvidia climbing 5.6%, significantly contributing to the S&P 500’s rise. The company announced a partnership with a Saudi Arabian AI startup to supply data center chips. Other AI-related companies also experienced notable increases: Super Micro Computer surged 16%, GE Vernova rose 4%, and Palantir Technologies gained 8.1%.
Challenges for UnitedHealth Group
Conversely, UnitedHealth Group’s shares plummeted by 17.8% after the company suspended its financial forecasts due to unforeseen medical costs and announced a leadership change. The company’s struggles were a significant factor in the Dow’s underperformance compared to other U.S. indices.
Market Summary
Overall, the S&P 500 gained 42.36 points, ending at 5,886.55. In contrast, the Dow fell by 269.67 points, concluding at 42,140.43, while the Nasdaq rose by 301.74 points, reaching 19,010.08.
Global Market Reactions
In the bond market, Treasury yields saw a slight increase, reflecting optimism about the U.S. economy, with the yield on 10-year Treasuries climbing to 4.48%. International markets similarly reacted, with many European and Asian indexes rising, though Hong Kong stocks dropped by 1.9% while Tokyo’s gained 1.4%. Japanese automakers notably saw advancements, with Nissan Motor Co. rising by 3% amidst restructuring announcements.
Choe reports for the Associated Press.