On Wednesday, U.S. stocks initially rose due to positive inflation data and a breakthrough in U.S.-China trade discussions but ultimately closed lower as investor sentiment waned. The Bureau of Labor Statistics released data indicating that the Consumer Price Index (CPI) increased by a modest 0.1% from April to May, a slowdown compared to the previous month’s 0.2% rise, as well as below economists’ expectations of a 0.2% increase. Annually, the CPI reported a 2.4% gain, reflecting a slight ascent from April’s 2.3%, aligning with market forecasts.
In a closely monitored economic measure, the core CPI, which excludes the volatile categories of food and energy, also registered a 0.1% increase month-over-month and an annual rise of 2.8%. This figure came in below economists’ projections of 0.3% and 2.9%, respectively. Market reactions were initially enthusiastic, but some economists remained cautious about the implications of the latest data. Bill Adams, Chief Economist at Comerica, expressed skepticism, suggesting that the CPI’s drop might represent a temporary reprieve rather than a sustained decline in inflation. He noted that sluggish consumer demand likely played a role in the subdued inflation data, pointing to insights from the Federal Reserve’s Beige Book, which highlighted consumer anxiety regarding the economic outlook. Adams cautioned that businesses might have to raise prices again in the latter half of the year as they can only absorb higher input costs for a limited time.
Investor sentiment experienced a lift with the announcement from the Trump administration regarding a tentative trade agreement with China. High-level discussions commenced in London earlier this week, and President Trump proclaimed via his Truth Social platform that the agreement with China is “DONE.” While full details of the deal have yet to be unveiled, it appears that both nations are returning to the framework discussed in Geneva last month. Among the announced terms, China has reportedly committed to issuing temporary export licenses for rare earth materials to U.S. companies, while the U.S. will permit the sale of specific products including jet engines and ethane to China.
In a separate development regarding trade, reports indicated that the U.S. and Mexico are closing in on a deal aimed at easing the 50% tariffs on steel imports imposed earlier this month by the Trump administration. According to Bloomberg, the arrangement may involve a quota system where steel imports from Mexico would remain tariff-exempt as long as they do not exceed a specified level. Following these reports, shares of U.S.-based steel companies displayed significant declines. Cleveland-Cliffs saw a drop of 8.1%, Nucor fell 6.1%, and Steel Dynamics was down 2.8%.
Chewy, a leading online retailer of pet supplies, emerged as another notable decliner, with its stock tumbling 11% after it released its earnings report. Chewy posted higher-than-expected adjusted earnings per share and revenue figures for its fiscal first quarter. However, its generally accepted accounting principles (GAAP) net income fell short of Wall Street expectations. Jay Woods, Chief Global Strategist at Freedom Capital Markets, remarked in an emailed commentary that the consumer discretionary stock had likely been overbought, having surged 45% since early April. While Woods acknowledged that any pullbacks might present buying opportunities, he emphasized the company’s strong customer loyalty and favorable long-term technical outlook.
Conversely, International Business Machines (IBM) registered a significant gain, climbing 1.9% to achieve a record closing price of $281.64, making it one of the top performers on the Dow Jones index. The surge in IBM’s stock is attributed to its announcement of plans to develop a large-scale fault-tolerant quantum computer, dubbed the IBM Quantum Starling, expected to be operational by 2029. This quantum system is poised to perform 20,000 times more operations than existing quantum computers, generating excitement not only for IBM but also benefiting other companies in the quantum computing sector. Quantum Computing shares soared by 25.4%, while Rigetti Computing saw an 11.4% increase on the same day.
As the session concluded, major U.S. indexes registered modest declines, with the Dow Jones Industrial Average closing slightly lower at 42,865 points. The S&P 500 fell by 0.3%, finishing at 6,022, while the Nasdaq Composite dropped 0.5%, settling at 19,615.
This mixed sentiment in the markets reflects underlying unease regarding inflation and consumer demand amid a backdrop of evolving trade relationships. In the coming weeks, investors will likely keep a close watch on further developments both in terms of inflation metrics and international trade agreements as they navigate this complex economic landscape.