US stocks displayed mixed performance on Wednesday as investors reacted to a lower-than-anticipated inflation report and considered a new US-China agreement aimed at revitalizing their trade relations.
The Dow Jones Industrial Average remained largely unchanged, while the S&P 500 experienced a decline of over 0.3%. The Nasdaq Composite, heavily weighted towards technology stocks, fared worse with a drop of nearly 0.6%. This comes at a time when both the S&P 500 and Nasdaq have recently neared record closing highs, driven by optimism surrounding potential trade negotiations.
Before trading commenced, the markets had a subdued reaction to a framework agreement between the US and China designed to advance their tariff truce established in Geneva. President Trump, along with other American officials, suggested that the agreement would address issues related to rare earths and magnets. Trump also announced that the US would permit Chinese students to enroll in American colleges, which had become a point of contention after the mid-May deal. However, analysts noted that the framework lacked specific details regarding export restrictions and tariff rates.
Stocks gained some momentum following the release of the May Consumer Price Index (CPI), which showed a month-over-month increase of 0.1%, lower than the expected 0.2% rise. Year-over-year, the core CPI, which excludes the often-volatile food and energy sectors, also rose by 2.8%, matching the rate from April, while monthly core prices only saw a 0.1% increase compared to the prior 0.2% gain. Market expectations had anticipated a 2.9% growth year-over-year and a 0.3% month-over-month increase.
The inflation data is particularly significant as it precedes the Federal Reserve’s upcoming monetary policy meeting on June 18. Following the release, the likelihood of an interest rate cut in September has increased, with the markets now indicating a 57.2% chance compared to 53.5% the previous day, according to the CME FedWatch tool.
Additionally, the Russell 2000 index, known for its sensitivity to interest rate fluctuations, rose approximately 0.4% during early trading.
The current market dynamics suggest a cautious optimism as investors navigate through external economic factors and assess their impact on future policymaking. With trade negotiations and inflation trends in focus, the markets continue to showcase resilience amid uncertainties.