The S&P 500 hovered near record highs on Wednesday, gaining 13.33 points or 0.18% to 7,414.29, while the Nasdaq Composite surged 185.49 points or 0.71% to 26,274.14. According to Reuters, the Philadelphia SE Semiconductor index (.SOX) was up 2.3% and testing a new record high, bouncing back from a selloff in the previous session. However, Dow Jones Industrial Average fell 268.56 points or 0.53% to 49,494.88, with seven of the eleven main S&P 500 sectors trading in the red, led by utilities which declined 1.7%. The S&P 500 posted 23 new 52-week highs and 44 new lows while the Nasdaq recorded 79 new highs and 163 new lows, reflecting mixed market sentiment despite tech strength. As reported by Investopedia, stock futures are mixed Wednesday as investors await another report on inflation, with oil prices sticking above $100 a barrel amid uncertainty about Iran peace talks.
The dollar index (DXY00) climbed to a 1.5-week high today and is up by +0.22%, moving higher on the stronger-than-expected US April PPI report which was hawkish for Fed policy. According to latest reports, US April PPI final demand rose +1.4% month-on-month and +6.0% year-on-year, stronger than expectations of +0.5% m/m and +4.8% y/y, with the +6.0% y/y jump being the largest increase in 3.25 years. April PPI ex-food and energy rose +0.6% m/m and +5.2% y/y, stronger than expectations of +0.3% m/m and +4.3% y/y, with the +5.2% y/y gain being the largest increase in 3.25 years. The dollar also has safe-haven support on concerns that the US-Iran ceasefire may break down after President Trump said the current ceasefire was on "life support." Swaps markets are discounting the odds at 2% for a 25 bp rate cut at the next FOMC meeting on June 16-17, with markets increasingly pricing in potential rate hikes by mid-2027.
Chip stocks and megacap technology shares led the market recovery, with Alphabet (GOOGL.O) climbing 2.6% and Tesla (TSLA.O) rising 3.6%. As reported by Reuters, memory chip makers including Micron, Western Digital, Seagate and SanDisk rose in premarket trading, helping lift Nasdaq futures and supporting overall market sentiment. Nvidia, Micron and ON Semiconductor advanced as AI-linked optimism returned after the prior session's weakness, with Nvidia gaining over 2% and AMD rising nearly 2%. The broader semiconductor basket also advanced, underscoring continued investor appetite for AI-linked plays despite recent volatility and hotter-than-expected consumer inflation data that rattled sentiment in the previous session.
Market expectations for Federal Reserve policy have undergone a significant shift following stronger-than-expected inflation data. According to Reuters, traders now expect the Fed to stay on hold all through the year and a 34.3% chance of a rate hike by December, compared with an around 15% chance seen a week ago, according to the CME FedWatch Tool. The data prompted traders to ramp up bets on future Federal Reserve tightening, with markets increasingly pricing in a potential rate hike by mid-2027. Kevin Warsh's confirmation added to expectations of a more hawkish Fed stance as Jerome Powell's term nears its end, with the regulator expressing readiness to work with incoming leadership while declining to speculate on policy changes. This represents a notable shift from previous expectations that the Fed might cut rates, with elevated inflation expectations and persistently high oil prices seen keeping pressure on the Fed's policy outlook.
Market attention now turns to April's producer price index (PPI) data due later in the day, with economists expecting wholesale inflation to rise 0.5% month-on-month, with core PPI seen at 0.4%. According to Reuters, U.S. producer prices increased more than expected in April, posting their biggest gain since early 2022, the latest indication that inflation was accelerating amid the war with Iran. The data comes a day after U.S. consumer inflation posted the sharpest increase in three years in April and knocked the S&P 500 and the Nasdaq from their record highs. Oil prices eased after recent gains but remain elevated due to supply disruptions from the Iran conflict, keeping bond yields high and reducing hopes of near-term rate cuts. As reported by Investopedia, oil prices are sticking above $100 a barrel amid uncertainty about Iran peace talks, adding to inflationary pressures and complicating the U.S. Federal Reserve's policy decisions.
The stronger dollar is creating mixed impacts across global markets, with EUR/USD down by -0.25% as today's stronger dollar weighs on the euro. According to latest reports, Eurozone Mar industrial production rose +0.2% m/m, slightly weaker than expectations of +0.3% m/m, while the French Q1 mainland unemployment rate rose +0.2 points to a 5-year high of 7.9%, showing a weaker labor market than expectations of 7.8%. ECB Governing Council member Olli Rehn warned that recent data are starting to point to stagflation as a result of the Iran war and rising energy prices, saying "The first signs were already visible in the statistics, when growth in the Eurozone in the first quarter was only slightly positive, and inflation accelerated to 3%." Swaps are discounting an 82% chance of a +25 bp rate hike by the ECB at the next policy meeting on June 11. In Japan, USD/JPY is up by +0.13% as the yen faces pressure from a stronger dollar and the April Eco Watchers Outlook Survey rose less than expected at +0.7 to 39.4, weaker than the 40.9 expected. June COMEX gold is down -4.00 (-0.09%) while July COMEX silver is up +2.2499 (+2.63%) at a 2-month high, with today's stronger dollar weighing on gold prices and higher global bond yields bearish for precious metals.
