U.S. stocks were lower at midday on Tuesday, with technology stocks leading the decline. The Nasdaq Composite fell 1.7%. The U.S. Consumer Price Index for April rose 3.8% year-over-year, reaching a new high since May 2023, while crude oil prices continued to climb. The market continued to monitor developments regarding U.S.-Iran tensions.
The Dow Jones Industrial Average fell 173.40 points, or 0.35%, to 49,531.07. The Nasdaq Composite dropped 449.89 points, or 1.71%, to 25,824.23. The S&P 500 declined 66.48 points, or 0.90%, to 7,346.36.
West Texas Intermediate crude futures rose 3% on Tuesday, surpassing $101 per barrel. Brent crude increased 3%, breaking above $107 per barrel. This followed remarks from the U.S. President, who described a month-long ceasefire agreement with Iran as "incredibly weak" and stated that, after rejecting an "unacceptable" counter-proposal from Tehran, the deal was "on massive life support."
The President's latest comments contributed to the rise in oil prices.
In its latest counter-proposal, Iran insisted on war reparations, full sovereignty over the Strait of Hormuz, the unfreezing of frozen Iranian assets, and the lifting of sanctions.
Wall Street had just experienced an advancing session, with the S&P 500 and Nasdaq Composite both reaching record highs.
A solid earnings season has continued to drive the market higher in recent sessions. The chief investment office portfolio strategy head at a major private bank stated she remains optimistic about the overall market.
She said, "If the market shows weakness after such a strong rebound from the March lows, I would view it as a buying opportunity because the current market is driven by corporate profits, capital expenditures, and a strong labor market. We have many reasons to remain optimistic."
On the economic front Tuesday, the U.S. April CPI hit a three-year high.
Prices paid by consumers for goods and services rose at a faster-than-expected pace in April, raising further concerns about inflation's impact on the U.S. economy.
The U.S. Bureau of Labor Statistics reported Tuesday that, on a seasonally adjusted basis, the Consumer Price Index increased 0.6% month-over-month and 3.8% year-over-year in April. The monthly increase met expectations, but the annual rate was 0.1 percentage point higher than the median estimate in a Dow Jones survey.
Excluding food and energy, the core CPI rose 0.4% for the month and 2.8% from a year ago, indicating that while inflation remains well above the Federal Reserve's 2% target, a significant portion of the pressure stems from non-core areas, particularly energy.
This overall annual inflation rate is the highest since May 2023, up 0.5 percentage points from March. The core annual inflation rate increased by 0.2 percentage points.
Energy prices were again a major driver of the surge, rising 3.8% for the month, while food prices increased 0.5%. For energy, the 12-month increase reached 17.9%, with food up 3.2%. The gasoline price index rose 28.4% year-over-year.
Although energy, particularly gasoline, was a primary factor pushing overall inflation higher, inflationary pressures also came from several other areas.
Housing costs rose 0.6%, the apparel category increased 0.6%, and airline fares accelerated, rising 2.8% for the month and 20.7% over 12 months. Import tariffs also appeared to affect other areas, with prices for household furnishings and operations up 0.7%.
The report also contained bad news for workers: real average hourly earnings fell 0.5% for the month and were down 0.3% year-over-year.
The latest inflation data arrives as the Federal Reserve is at a crossroads. The central bank has held its benchmark interest rate steady throughout the year as policymakers are divided on where it should go and how to communicate its intentions.
In late April, the Fed again voted to hold rates steady, but with four dissenting votes—the highest since 1992. A Fed governor dissented again, favoring a 25-basis-point rate cut, while three regional Fed presidents objected to language in the statement that markets interpreted as signaling the next move would be a cut.
Meanwhile, the incoming Fed Chair has advocated for lower interest rates, a stance difficult to reconcile with the surge in inflation since the outbreak of hostilities involving Iran. Energy prices have risen sharply, with oil prices surpassing $100 per barrel and the national average price for gasoline reaching $4.50 per gallon, according to data.
The market broadly expects the Fed to stand pat this year, with market pricing reflecting a low probability of a rate hike. However, traders have increased expectations for a rate hike before year-end, according to data from CME Group.
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