US Stock Market Today: Wall Street Pulls Back From Record Highs as April CPI Fuels Fed Rate Concerns

US stocks opened lower on Tuesday after April inflation data came in above forecasts and rising Middle East tensions kept oil prices elevated. Investors moved away from risk assets as traders reassessed the Federal Reserve’s rate path.

The S&P 500 and NASDAQ fell at the opening bell, while the Dow Jones Industrial Average edged higher. The move followed fresh record closes for the S&P 500 and NASDAQ on Monday, supported by earnings strength and artificial intelligence-linked optimism.

April CPI Data Pressures Market Sentiment

The Consumer Price Index rose 3.8% in April from a year earlier, above the 3.7% increase expected by economists polled by Reuters. The figure marked the fastest annual inflation pace since May 2023.

Consumer prices increased 0.6% every month, matching forecasts. However, the annual reading added pressure on investors who had expected inflation to cool faster after recent gains in US equities.

Core CPI, which excludes food and energy, rose 0.4% from March and 2.8% from a year earlier. Economists had expected core inflation to rise 0.3% monthly and 2.7% annually.

The report strengthened expectations that the Federal Reserve may keep interest rates unchanged for longer. Traders had earlier expected two rate cuts before the Middle East conflict intensified, according to CME Group’s FedWatch Tool. They now expect rates to remain steady through year-end.

Stocks Retreat After Record Highs

The S&P 500 had recently closed above the 7,400 level for the first time as AI optimism and strong earnings pushed US stocks to fresh highs. The S&P 500 fell 22.2 points, or 0.30%, at the open to 7,390.63. The NASDAQ Composite dropped 187.1 points, or 0.71%, to 26,087.009.

The Dow Jones Industrial Average rose 35.2 points, or 0.07%, to 49,739.62 at the opening bell. However, the broader market tone remained cautious as technology shares pulled back after several weeks of strong gains.

Chip stocks also weakened before the bell. Intel fell 3.8% after gaining more than 17% during the previous two sessions. The decline showed that AI-linked momentum had cooled after Monday’s rally.

Middle East Conflict Keeps Oil Prices High

Market caution also increased as hopes faded for a quick end to the conflict between Washington and Tehran. President Donald Trump said a ceasefire with Iran was ‘on life support’ after Tehran rejected a US proposal.

The Strait of Hormuz remained closed, keeping shipping traffic under pressure and lifting oil prices. Higher oil prices added fresh concern that energy costs could keep inflation above the Federal Reserve’s target.

Doug Beath, Global Equity Strategist at Wells Fargo Investment Institute, said markets may have been slow to price in rising economic stress. “We believe the financial markets have been a little slow to appreciate the economic damage that is building with higher prices, oil prices, raw materials, and all those things that could accelerate global inflation,” he said.

He also raised doubts about the market’s recent strength. “April had the highest S&P 500 returns since 2020. Obviously, earnings continue to exceed expectations. But I do think even though it (CPI) is a little bit higher than expected, it could be more important because of the fact the negotiations are still in limbo,” Beath said.

Earnings Strength Still Supports Some Buyers

Although inflation and oil prices pressured stocks, strong corporate earnings continued to support market confidence. Many companies have beaten Wall Street estimates during the first-quarter reporting season.

Jeff Buchbinder, Chief Equity Strategist at LPL Financial, said inflation could have been worse given the pressure from Middle East tensions. “Despite coming in hotter than expected, the rise in consumer prices could have been much worse than this given Middle Eastern tensions,” he said.

Tim Urbanowicz, Chief Investment Strategist at Innovator ETFs from Goldman Sachs Asset Management, said investors may keep watching earnings and economic growth in the coming months. He said the Fed has shown it may look past a temporary inflation spike linked to the Iran conflict.

However, JPMorgan’s Dubravko Lakos-Bujas warned that prolonged tensions could test investor confidence. “Earnings, the AI narrative has been overriding the whole geopolitical oil situation,” he said. “Now obviously, if you fast forward another four or five weeks and the situation remains unresolved, then you get complacency.”

Company Movers Add to Volatility

Hims & Hers Health dropped 15% after the telehealth company missed Wall Street estimates for first-quarter revenue and reported a surprise loss. The company also faced higher costs tied to its move into branded weight-loss medicines.

Venture Global rose 8.3% after the LNG exporter raised its annual adjusted core profit forecast. Quantum computing also gained after reporting first-quarter revenue above analyst expectations.

Meanwhile, eBay rejected a $56 billion takeover offer from GameStop CEO Ryan Cohen. The company called the unsolicited bid “neither credible nor attractive,” adding another corporate development to a busy trading session.

Investors will now watch producer prices and retail sales data later this week. These reports may give fresh clues on inflation, consumer demand, and the Fed’s next move.

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