Driven by U.S. artificial intelligence-related technology stocks, the S&P 500 and Nasdaq Composite indices both reached new all-time highs. The market has temporarily digested the reality of higher-than-expected inflation data and the increased likelihood of the Federal Reserve maintaining a tight monetary policy for the foreseeable future.
At the close, the Dow Jones Industrial Average fell 67.36 points, or 0.14%, to 49,693.20. The Nasdaq Composite rose 1.20% to 26,402.34, and the S&P 500 gained 0.58% to 7,444.25.
Six of the "Magnificent Seven" tech giants advanced, with gains ranging from 1.4% to 3.9%. Only Microsoft saw a slight decline.
On an individual stock basis, chip stocks, which weighed on the market in the previous session, stabilized. The Philadelphia Semiconductor Index rose 2.3%. Marvell Technology led the gainers, surging 8.18%.
Performance in the memory chip sector was mixed. Micron Technology shares rose 4.83% after Bank of America raised its price target on the stock from $500 to $950, while maintaining a "Buy" rating. The bank believes that in the coming years, demand growth for memory chips related to AI servers and data centers will continue to outpace supply growth. Within this trend, Micron has become one of the biggest beneficiaries, particularly in the field of High-Bandwidth Memory used in advanced AI chips. Western Digital gained 1.09%, while SanDisk fell 0.33% and Seagate Technology declined 0.98%.
Ford Motor shares surged 13.2%, marking their largest single-day gain in six years. Morgan Stanley stated that its energy business and collaboration with Chinese battery giant CATL represent "underappreciated" competitive advantages.
The Nasdaq Golden Dragon China Index jumped 3.89%. Alibaba, JD.com, and Baidu all rose more than 7%. Pinduoduo gained 4.04%, and NetEase advanced 2.44%.
On the economic data front, a report from the U.S. Labor Department showed that the Producer Price Index jumped 1.4% last month, the largest monthly increase in four years. Although this surge was primarily driven by crude oil supply disruptions due to the closure of the Strait of Hormuz, the report indicated that rising oil prices are beginning to seep into other parts of the economy, suggesting that inflation is becoming more broad-based.
Boston Fed President Susan Collins said on Wednesday that if inflation pressures do not subside, a rate hike cannot be ruled out. Minneapolis Fed President Neel Kashkari noted that the U.S. labor market is "slightly better" than at the start of the year, and the escalation of U.S.-Iran conflict has exacerbated already high inflation. He leans towards retaining the Fed's option to raise rates.
Recent inflation data has dashed the market's last hopes for a near-term Fed rate cut. According to the CME FedWatch Tool, traders now expect the Fed to hold rates steady for the entire year, with a 34.3% probability of a rate hike by December. A week ago, that probability was around 15%.
Medium- and long-term U.S. Treasury yields moved higher. The 2-year Treasury yield, closely tied to interest rate expectations, approached the 4% threshold. The benchmark 10-year Treasury yield rose 0.9 basis points to 4.479%.
"This inflation data is very challenging. It means Kevin Warsh is very unlikely to cut rates in the short term, and may not cut at all this year," said Peter Cardillo, chief market economist at Spartan Capital Securities.
The U.S. Senate formally approved Kevin Warsh as the new Federal Reserve Chairman on Wednesday. The Senate had already confirmed Warsh to the Fed Board on Tuesday. Jerome Powell's term as Fed Chair ends on Friday, though he will remain on the Board as a Governor.
Morgan Stanley raised its year-end target for the S&P 500 from 7,800 to 8,000 points, citing persistently strong corporate earnings and further room for U.S. stocks to rise.
"Strong earnings and inflation risk present conflicting narratives... two major forces are at play," said Jim Baird, Chief Investment Officer at Plante Moran Financial Advisors. "Since early April, the earnings narrative has been dominant. We must be wary of the risk of inflation persisting longer and rates staying higher for longer. The PPI report strengthens the inflation risk narrative, at least providing a basis for the Fed to keep rates on hold for a more extended period."
Oil prices declined. The International Energy Agency forecast that heightened Middle East conflict, which has pushed up energy prices, will lead to a larger-than-previously-expected drop in global oil demand in 2026. West Texas Intermediate crude for June delivery fell $0.96, or 1.14%, to settle at $101.22 per barrel. The international benchmark, July Brent crude, fell $1.97, or 1.99%, to $105.80 per barrel.
Precious metals edged higher. COMEX gold futures for May delivery rose 0.43% to $4,697.70 per ounce. COMEX silver futures surged 4.41% to $88.88 per ounce.
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