Stocks Stall Following Inflation Data and US-China Trade Developments
US stocks paused on their recent rally Wednesday, with investors weighing a softer-than-expected inflation reading and assessing the latest US-China trade developments. The Dow Jones Industrial Average (^DJI) remained flat, while the S&P 500 (^GSPC) dipped just under 0.3%. The Nasdaq Composite (^IXIC), heavily impacted by tech stocks, led the declines, falling roughly 0.5%.
Trade Truce Plans and Limited Market Reaction
The US-China framework agreement, aimed at salvaging their trade truce, received a muted response from markets. The agreement seeks to resolve issues related to rare earths and magnets, with US officials indicating that the deal could provide a pathway forward. President Trump also announced that Chinese students would be allowed in US colleges, resolving a point of contention that emerged after the mid-May Geneva deal. However, the agreement lacked details on export curbs and tariff levels, leading to limited optimism.
Inflation Data and Fed Rate Cut Expectations
Stocks saw a slight recovery following the release of May’s Consumer Price Index (CPI) data, which showed a more moderate inflation increase than anticipated. Consumer inflation rose by 0.1% month-over-month, below the expected 0.2%, and the year-over-year core CPI remained steady at 2.8%. Monthly core prices also increased by just 0.1%, compared to the 0.2% rise in April. This data raised market expectations of a potential interest rate cut by the Federal Reserve, with September rate cut odds increasing to 57.2% from 53.5% the day before.
Fed Decision and Market Impact
The inflation data is especially relevant as the Federal Reserve prepares for its next monetary policy decision on June 18. Treasury yields also saw a decline, with the benchmark 10-year yield (^TNX) falling to 4.41%, reflecting the market’s sensitivity to economic signals and potential policy changes.
