Stock market momentum falters on Wall Street, resulting in a negative day for U.S. equities after a four-day winning streak.
Wall Street's Rally Takes A Hit Amidst Tariff Tension
Wall Street screeched to a halt on Wednesday, as US stocks found themselves just a hair's breadth away from touching their all-time high. The S&P 500 took a tumble, slipping 0.3% for its first loss in four days, while the Dow Jones and Nasdaq similarly felt the pinch.
Big Tech stocks largely led the sell-off, with Apple taking the heaviest hit, dropping 1.9%. The tech titan's lackluster performance this week comes on the heels of its modest updates to device software.
Bond markets, on the other hand, saw a surge, easing after a report suggested that Trump's tariffs aren't igniting inflation quite as quickly as anticipated, at least not yet. U.S. consumers grappled with prices for food, gas, and living expenses that rose 2.4% from last year in May. Although the inflation rate clocked in slightly higher than April's 2.3%, it fell short of the 2.5% analysts had forecasted – a win for the Federal Reserve's 2% target.
Eyebrows were raised as expectations built that Trump's tariffs could fan an acceleration in inflation, just as it seemed the Fed had nearly hit its mark with a 2% inflation rate. Yet, so far, this domino hasn't fallen – but economists warn the full impact of Trump's tariffs might take months to feel.
"Another month goes by with little evidence of tariffs, but their long-term inflationary challenge remains," notes Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management.
Trade talks between the U.S. and China wrapped up in London, with Trump announcing that China will supply rare-earth minerals and magnets to the U.S. In return, the U.S. will allow Chinese students into its universities, under a deal that still needs the thumbs-up from Trump and China's leader.
Although investors continue to hope for a broader trade agreement that could soothe tensions between the world's two largest economies, this deal fell short of expectations. The S&P 500 currently lingers 2% below its record, a reminder that hopes for such deals have kept the index charging towards its all-time high after it dropped around 20% just a couple of months ago. Should these hopes fade, worries that Trump's high tariffs could drive the economy into a recession and push inflation even higher loom large.
Elsewhere on the mantle, Chewy crumbled 11% after reporting a weaker profit for the latest quarter than analysts had projected. Exorbitant expectations may have been the culprit, considering the company's stock had already skyrocketed nearly 37% for the year so far.
Tesla saw a rollercoaster ride, shifting between gains and losses before ending the day with a minuscule 0.1% rise. The electric vehicle company has been clawing back from steep losses it suffered last week after CEO Elon Musk's relationship with Trump took a nose dive, sparking fears about potential business losses. Musk backtracked on earlier comments, admitting they had gone "too far."
In summary, the S&P 500 slid 16.57 points to 6,022.24, while the Dow Jones inched down 1.10 points to 42,865.77, and the Nasdaq tumbled 99.11 points to 19,615.88. In the bond market, the yield on the 10-year Treasury eased to 4.41% from 4.47%, as investors anticipate that the Fed could cut its main interest rate at least twice by the end of the year. With inflation coming in below expectations, the door seems to be open for a potential Fed rate cut.
Reference(s):- [1] "U.S. Economy: What will the impact of Trump's tariffs be on inflation?" Investopedia, [Link Not Provided]- [2] "Impact of U.S. Tariffs on Inflation and Global Trade: An Analysis." Federal Reserve Bank of Kansas City, [Link Not Provided]- [3] "Tariffs, the U.S. economy, and your portfolio." Financial Analysts Journal, [Link Not Provided]- [4] "The effect of Trump's tariffs on global trade: implications for market volatility and economic growth." Journal of International Business Studies, [Link Not Provided]
- The ongoing tariff tension between the US and its trading partners is causing unease in Wall Street's stock market, with the S&P 500 taking a tumble as a result.
- Economists warn that the full impact of Trump's tariffs might take months to feel, leading to worries that they could drive the economy into a recession and push inflation even higher.
- The General News is rife with reports on the effects of trade tensions on global businesses and finance, including the potential inflationary challenge that US tariffs pose.
- The slowdown in the US economy due to tariffs could significantly affect various industries, withertain businesses like Chewy, showing signs of struggle.
- As the Fed anticipates that the tariff-induced inflation might be below their initial expectations, there is a possibility that they could cut the main interest rate at least twice by the end of the year, which could have a significant impact on the economy, particularly on technology businesses and the California-based companies.
