U.S. stocks closed mixed on Tuesday, May 13th, with the Dow Jones Industrial Average posting a modest gain while the Nasdaq Composite and S&P 500 ended lower. The U.S. Consumer Price Index for April rose 3.8% year-over-year, reaching its highest level since May 2023. Crude oil prices continued their ascent. Market participants continued to monitor developments in U.S.-Iran relations.
The Dow Jones Industrial Average gained 56.09 points, or 0.11%, to close at 49,760.56. The Nasdaq Composite fell 185.92 points, or 0.71%, to 26,088.20. The S&P 500 declined 11.88 points, or 0.16%, to 7,400.96.
West Texas Intermediate crude futures rose 2% on Tuesday, surpassing $100 per barrel. Brent crude advanced 3%, climbing above $107 per barrel. This followed comments from the U.S. President, who described a month-long ceasefire agreement with Iran as "unbelievably weak" and stated it was "on life support" after rejecting an "unacceptable" counter-proposal from Tehran.
The President's latest remarks 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 its frozen 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 robust earnings season has continued to propel the stock market higher in recent sessions. Marci McGregor, Chief Investment Office Portfolio Strategist at Merrill and Bank of America 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 data 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, sparking 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 rose 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 from a Dow Jones survey.
Excluding food and energy, the core CPI increased 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 rose 0.2 percentage points.
Energy prices were once again a primary driver of the inflation surge, rising 3.8%, while food prices increased 0.5%. For energy specifically, the 12-month increase reached 17.9%, with food up 3.2%. The gasoline price index surged 28.4% year-over-year.
Although energy, especially gasoline, was a major 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 sectors, with prices for household furnishings and operations up 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.
This latest inflation data arrives as the Federal Reserve stands 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 voted against 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 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 hostilities involving Iran. Energy prices have risen sharply, with oil prices exceeding $100 per barrel and the national average price for gasoline reaching $4.50 per gallon, according to AAA.
Markets widely expect the Fed to remain on hold this year, with pricing reflecting a low probability of a rate hike. However, traders have increased their expectations for a rate hike before year-end, according to data from CME Group.
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