U.S. stocks were mixed in late trading on Tuesday, with the Dow Jones Industrial Average posting a modest gain. 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. Market attention remained focused on developments in U.S.-Iran relations.
The Dow Jones Industrial Average rose 52.49 points, or 0.11%, to close at 49,756.96. The Nasdaq Composite fell 320.98 points, or 1.22%, to 25,953.15. The S&P 500 declined 29.88 points, or 0.40%, to 7,382.96.
West Texas Intermediate crude futures rose 2% on Tuesday, surpassing $100 per barrel. Brent crude increased by 3%, reaching above $107 per barrel. This followed remarks from former U.S. President Donald Trump, who described a month-long ceasefire agreement between the U.S. and Iran as "unbelievably weak" and stated that, after rejecting an "unacceptable" counter-proposal from Tehran, the deal was "hanging by a thread."
Trump's latest comments contributed to the upward momentum in oil prices.
In its latest counter-proposal, Iran insisted on war reparations, full sovereignty over the Strait of Hormuz, the unfreezing of Iranian assets, and the lifting of sanctions.
This comes after Wall Street recently experienced a positive trading session, with both the S&P 500 and the Nasdaq Composite reaching new all-time highs.
A robust earnings season has continued to drive the stock market higher in recent sessions. Marci McGregor, Chief Investment Office Portfolio Strategist at Merrill and Bank of America Private Bank, stated that 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 that as a buying opportunity because the current market is driven by corporate profits, capital expenditure, and a strong labor market. We have many reasons to remain optimistic."
On the economic data front Tuesday, the U.S. April CPI hit a three-year high.
Prices paid by consumers for various goods and services rose at a faster-than-expected pace in April, raising further concerns about the impact of inflation on the U.S. economy.
The U.S. Bureau of Labor Statistics reported Tuesday that the seasonally adjusted 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 forecast 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. This indicates that while inflation remains well above the Federal Reserve's 2% target, a significant portion of the pressure is coming 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 inflation surge, rising 3.8%, while food prices increased by 0.5%. For energy, the 12-month increase reached 17.9%, with food up 3.2%. The gasoline price index surged 28.4% year-over-year.
Although energy, particularly gasoline, was a primary factor pushing overall inflation higher, inflationary pressures also stemmed from several other areas.
Housing costs rose 0.6%, the apparel category increased 0.6%, and airfares accelerated, rising 2.8% for the month and 20.7% over 12 months. Import tariffs also appeared to affect other sectors, with prices for household furnishings and operations rising 0.7%.
The report also contained negative 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 finds itself at a crossroads. Policymakers have kept the benchmark interest rate unchanged throughout the year amid disagreements over the direction the central bank should take and how to communicate its intentions.
In late April, the Fed once again voted to hold rates steady, but with four dissenting votes—the highest number since 1992. Governor Stephen Milan again dissented, 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 rate cut.
Meanwhile, incoming Fed Chair Kevin Warsh has advocated for lower interest rates, a stance that is difficult to reconcile with the surge in inflation following the outbreak of conflict involving Iran. Energy prices have risen sharply, with oil surpassing $100 per barrel according to AAA data, and the national average price for gasoline reaching $4.50 per gallon.
The market widely expects the Fed to remain on hold this year, with pricing reflecting a low probability of a rate hike. However, according to data from CME Group, traders have increased their expectations for a rate hike before the end of the year.
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