- Inflation data prompts market reassessment of interest rate cuts.
- US consumer prices rose sharply, impacting Federal Reserve outlook.
- Tech stocks led losses as investor sentiment wavered.
The S&P 500 and the Nasdaq retreated from record highs on Tuesday, with technology stocks leading losses after stronger-than-expected inflation data and stalled efforts to resolve the Middle East conflict unsettled investors.
US consumer prices rose at a brisk pace for a second consecutive month in April, pushing annual inflation to its highest level in nearly three years and reinforcing expectations that the Federal Reserve could keep interest rates elevated for longer.
Inflation Data Dampens Rate Cut Hopes
Investors are increasingly reassessing expectations for interest rate cuts as inflationary pressures persist.
“The market is now looking at the Fed and saying the next move, if there is one, it might be a hike, not a cut. And that certainly would be a change of framework for the markets,” Scott Welch, chief investment officer of Certuity, said.
Before the escalation of the conflict, traders had anticipated two rate cuts this year, according to CME Group’s FedWatch Tool. Markets are now pricing in the possibility that the Federal Reserve may keep rates unchanged through the end of the year.
Trump’s Iran Remarks Add To Market Anxiety
Investor sentiment also remained fragile as negotiations between Washington and Tehran showed little progress.
US President Donald Trump said the ceasefire with Iran was “on life support” after Tehran rejected a US proposal aimed at ending the conflict.
The remarks kept crude oil prices elevated and added to concerns about inflationary pressures.
Tech Stocks Lead Sharp Declines
At 12:30 p.m. ET, the Dow Jones Industrial Average fell 177.42 points, or 0.36%, to 49,527.05. The S&P 500 lost 65.48 points, or 0.88%, to 7,347.36, while the Nasdaq Composite dropped 448.73 points, or 1.71%, to 25,825.79.
Technology stocks emerged as the biggest drag on markets, with semiconductor shares retreating sharply after posting strong gains in recent weeks.
The Philadelphia SE Semiconductor index tumbled nearly 6%, though it remained up around 50% for the quarter.
The sector also came under pressure after South Korean presidential policy adviser Kim Yong-beom floated the idea that excess earnings generated during the AI era should be redistributed to citizens.
“There’s been such a remarkable rally in the semiconductor and mega cap tech stocks over the last several weeks, that I think investors are starting to take some profits,” Welch added.
Intel, Qualcomm Among Major Losers
Intel shares fell 9.7% after gaining more than 17% over the previous two sessions.
Qualcomm dropped 13.7% after touching a record high on Monday.
Markets are also closely watching Trump’s visit to China, which begins on Wednesday, though expectations remain low for breakthroughs either on Iran or trade-related issues.
Zebra Technologies Surges, Hims & Hers Slides
Among other notable movers, Zebra Technologies jumped 16.8% after the barcode scanner maker raised its annual sales growth forecast on expectations of strong demand for products used in manufacturing automation.
Meanwhile, Hims & Hers Health slumped 15.2% after missing Wall Street estimates for first-quarter revenue and posting a surprise loss.
Declining Stocks Outnumber Gainers
Declining stocks significantly outpaced advancing shares across major exchanges.
On the NYSE, declining issues outnumbered advancers by a ratio of 2.84-to-1, while on the Nasdaq the ratio stood at 2.76-to-1.
The S&P 500 recorded 11 new 52-week highs and 28 new lows, while the Nasdaq Composite posted 43 new highs and 126 new lows.
