Wall Street’s recent rally paused on Wednesday as U.S. stocks experienced their first decline in four days, moving them slightly further from their all-time highs.
The S&P 500 dropped 0.3%, marking its initial loss after a four-day ascent. The Dow Jones Industrial Average saw a negligible decrease of just one point, while the Nasdaq composite slipped by 0.5%.
Several major tech companies contributed to the decline, with a 1.9% fall in Apple’s stock being the most significant drag on the market. Apple’s performance has been somewhat uninspired this week, following its announcement of relatively modest software updates for its devices.
More dynamic activity was observed in the bond market. Treasury yields eased after a new report suggested that President Donald Trump’s tariffs are not currently causing a substantial surge in inflation. U.S. consumers faced a 2.4% overall increase in the cost of living (food, gasoline, etc.) in May compared to a year prior. While this was up from April’s 2.3% inflation rate, it was still better than Wall Street’s expectation of 2.5%.
A persistent concern has been that Trump’s wide-ranging tariffs could reignite rapid inflation, particularly just as it appeared to be nearing the Federal Reserve’s 2% target, after peaking above 9% three summers ago. This feared acceleration hasn’t materialized yet, though economists caution that the full impact of Trump’s tariffs might take additional months to be felt. Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management, commented, “Another month goes by with little evidence of tariffs, but the longer-term inflation challenge they pose remains.”
Financial markets also reacted only modestly to the conclusion of two days of trade talks between the United States and China in London. President Trump stated on Wednesday that China would supply rare-earth minerals and magnets to the U.S. His administration would also allow Chinese students into U.S. universities, a deal still awaiting agreement from both himself and China’s leader. Trump also tweeted that “President XI and I are going to work closely together to open up China to American Trade. This would be a great WIN for both countries!!!”
Investors continue to hope for a more comprehensive trade agreement that would alleviate tensions between the world’s two largest economies. Hopes for such global trade deals have been a primary driver behind the S&P 500’s strong rebound, almost reaching its all-time high after dropping approximately 20% a couple of months ago. Without these agreements, there’s a fear that Trump’s high tariffs could trigger a recession while simultaneously pushing inflation higher. The S&P 500 currently stands 2% below its record.
On Wall Street, Chewy shares fell 11% after the pet supplies retailer reported a weaker profit for its latest quarter than analysts had projected. Expectations were high, as the stock had already surged nearly 37% year-to-date before Wednesday. Tesla experienced fluctuating gains and losses before closing with a modest 0.1% increase, continuing its volatile performance. The electric-vehicle company has been recovering from significant losses incurred last week following reports of Elon Musk’s strained relationship with Trump, which had raised concerns about potential business impacts. Musk on Wednesday retracted some of his earlier remarks, stating they “went too far.”
In total, the S&P 500 decreased by 16.57 points to 6,022.24. The Dow Jones Industrial Average slipped 1.10 points to 42,865.77, and the Nasdaq composite sank 99.11 points to 19,615.88. In the bond market, the yield on the 10-year Treasury bond eased to 4.41% from 4.47% late Tuesday. Shorter-term yields, which are more closely tied to expectations for the Federal Reserve’s overnight interest rates, experienced a more significant decline.
Wednesday’s better-than-expected inflation data boosted expectations on Wall Street that the Fed might implement at least two interest rate cuts by the end of the year. The Fed has maintained steady interest rates so far this year, having paused after a rate cut at the end of last year. It has been closely monitoring how much Trump’s tariffs might increase inflation, as further rate cuts could potentially accelerate inflation in addition to stimulating the economy. Brian Jacobsen, chief economist at Annex Wealth Management, remarked, “The Fed could be justified in doing some preemptive rate cuts. They were afraid that inflation would rise before growth would slow, but the script has been flipped and they will likely change their tune.”
In global stock markets, indexes across much of Europe declined after gains in Asia. South Korea’s Kospi was among the best performers, jumping 1.2%.
