US stocks decline as high inflation data strengthens outlook for unchanged Fed interest rates

The US S&P 500 index moved further away from its record highs on Wednesday after stronger-than-expected producer price data reinforced investor expectations that the Federal Reserve will maintain a restrictive monetary policy throughout the year.

Data showed that US producer prices rose more than expected in April, marking the biggest increase since early 2022, in the latest sign of accelerating inflation amid the fallout from the war with Iran.

The report came just one day after US consumer inflation recorded its largest increase in three years during April, pushing both the S&P 500 and Nasdaq indexes away from their record highs.

“These numbers are a major inflation challenge and simply mean that Kevin Warsh is not moving toward rate cuts anytime soon — and possibly not for the rest of the year,” said Peter Cardillo, chief market economist at Spartan Capital Securities.

Traders are now expecting the Federal Reserve to keep interest rates unchanged throughout the year, while the probability of a rate hike by December climbed to 34.3%, compared to around 15% just one week ago, according to CME Group’s FedWatch Tool.

Markets are also preparing for a more hawkish approach under Kevin Warsh after the US Senate confirmed his appointment to the Federal Reserve Board on Tuesday. He could officially assume the role of Fed chair as early as Wednesday, with Jerome Powell’s term ending on Friday.

Meanwhile, US President Donald Trump arrived in Beijing accompanied by a delegation that included Nvidia CEO Jensen Huang and billionaire Elon Musk, after pledging to urge Chinese President Xi Jinping to “open markets” to American companies during the two-day summit.

Trump had previously said ahead of the summit that he does not expect to ask Xi for help in resolving the conflict with Tehran.

Oil prices saw limited movement during the day after three consecutive sessions of gains, while investors awaited any new developments related to Iran.

Wall Street fears that a prolonged conflict could keep energy prices elevated, increasing inflationary pressures and complicating Federal Reserve monetary policy decisions.

By 9:45 a.m. Eastern Time, the Dow Jones Industrial Average fell 249.05 points, or 0.50%, to 49,511.51 points. The S&P 500 declined 13.91 points, or 0.19%, to 7,387.05 points, while the Nasdaq edged up 3.40 points, or 0.01%, to 26,091.60 points.

Nine out of the 11 major sectors within the S&P 500 traded in negative territory, with utilities leading losses after falling 1.6%.

Meanwhile, the selloff that hit semiconductor stocks during the previous session stabilized, with the Philadelphia Semiconductor Index rising 1.7%.

Among notable stocks, Nebius Group jumped 10% after the AI-focused cloud computing company reported quarterly revenue growth of nearly eightfold.

Earlier in the day, Morgan Stanley raised its year-end target for the S&P 500 to 8,000 points from 7,800, saying US equities still have room for further gains as companies continue delivering strong earnings.

On the trading front, declining stocks outnumbered advancing ones by a ratio of 2.39 to 1 on the New York Stock Exchange and by 1.89 to 1 on the Nasdaq.

The S&P 500 also recorded 11 new 52-week highs against 32 new lows, while the Nasdaq posted 55 new highs and 118 new lows.