The S&P 500 fell by more than 1.6% on Wednesday, with the Dow Jones Industrial Average dropping more than 950 points to close below 50,000. According to latest reports, the tech-focused Nasdaq fell 2%, while the Dow industrials dropped 1.9%. The market decline was attributed to escalating Middle East tensions rather than the inflation data itself. Core CPI rose by 0.2% month over month, slightly below estimates of 0.3%, while headline inflation has been running at more than an 8% annualized rate over the past three months. The only notable surprise was core CPI, which rose by 0.2% month over month, which analysts view as an encouraging sign suggesting less need for Federal Reserve rate hikes. Energy prices overall advanced 23.5% year-on-year in May, a marked jump from the 17.9% increase in April, with energy commodities advancing by 40.6% year-on-year, including fuel oil and gasoline prices rising 58.9% and 40.9% respectively.
The analysis reveals that headline inflation has been running at more than an 8% annualized rate over the past three months, while core CPI has been running at roughly a 3.2% annualized pace. As reported by Investing.com India, this suggests that underlying inflation pressures remain elevated, even if the monthly data did not deliver major surprises. The market is currently pricing year-over-year inflation at around 4% for June, which would represent a modest improvement from current levels. The Consumer Price Index rose 4.2% over 12 months in May, the highest annual inflation in three years, driven primarily by higher fuel prices from the Iran war. Core prices excluding food and energy rose 2.9% over 12 months, up from 2.8% in April, indicating that higher transportation costs are being passed along into other products. Energy services, which includes electricity prices and utility gas service, rose 5.3% year-on-year, with electricity prices up 5.9% and utility gas rising 3%. The 4.2% annual rise in CPI inflation was in line with expectations, however, the hot reading may boost bets that the Federal Reserve will hike interest rates this year.
Oil prices jumped after President Trump said Iran would "pay the price" for failing to strike a peace deal with the U.S., with tensions in the Middle East intensifying. According to Investing.com India, oil appears to be consolidating just below its 10-day exponential moving average in what looks like a triangle pattern. A breakout from this formation could signal the next leg higher and potentially put a move back above $100 per barrel into play. The U.S. launched "self-defense strikes" against Iran, which it said had downed an Army Apache helicopter, with Trump stating that the country has "taken too long to negotiate a deal that would have been great for them, now they will have to pay the price!!!" Later, he told reporters that the US would "hit" Iran "very hard" today. Futures on Brent crude rose nearly 2% to cross above $93 per barrel, while WTI crude gained a stronger 3.5% to trade above $91 per barrel. The latest clashes threaten a fragile ceasefire and risk extending the near-total closure of Hormuz, a vital transit point for energy shipments from the Middle East to global markets. Gasoline prices have risen significantly, with a gallon of regular averaging $4.15 compared to $2.98 at the end of February, according to AAA.
The tech sector took another bruising as the rotation out of the AI trade continued amid concerns around OpenAI (OPAI.PVT) and Anthropic's (ANTH.PVT) mega-IPOs. All of the Magnificent Seven tech giants but Apple ended lower, with Tesla (TSLA) and Nvidia (NVDA) leading declines at 3.8% and 3.7% respectively. The PHLX Semiconductor index fell 3.6%, reflecting broader concerns about AI-related costs. However, some stocks bucked the trend, with Cracker Barrel Old Country Store (CBRL) soaring 23% after reporting a surprise profit and lifting its full-year outlook. Retail selling across single stocks hit the heaviest level since November 2023, according to Vanda Research, with pressure concentrated in semiconductor names including Micron (MU) and Sandisk (SNDK). Oracle (ORCL) shares are up roughly 5% year to date and have rallied more than 40% since the March 30 market lows, with the company set to report earnings after market close today, as the company counts OpenAI as a customer and details of its cloud business are in focus amid fluctuations in the AI trade.
The S&P 500 has closed below the 7,300 put wall, which could allow the index to move lower toward 7,200. As reported by Investing.com India, this does not necessarily mean the market will decline, but it does open the door for further downside from current levels. The next technical support area comes in around 7,170, with the rising trend line from the megaphone pattern potentially creating a throwover scenario if the index breaks below 7,200. The 10-year Treasury yield was recently at 4.52%, down from 4.54% immediately before the CPI release, with traders watching the 4.6% level as a key resistance point. The U.S. dollar index ticked 0.1% higher to 99.97, while gold futures fell 4% to $4,115 an ounce. Gold is about a fifth below where it was trading before the Iran war broke out at the end of February, with the metal's recent decline through its 200-day moving average triggering additional selling as it's seen as an important level watched by institutional investors.
Today brings the PPI report, with the market likely focusing on portfolio management fees given the stock market's sharp rally in April and May. According to Investing.com India, the ECB meets today and is expected to raise rates by 25 basis points, taking the deposit rate to 2.25% from 2.0%. Markets are also pricing in another 25-basis-point hike in September, though focus will be on the timing and likelihood of that second hike. Oracle (ORCL) shares are up roughly 5% year to date and have rallied more than 40% since the March 30 market lows, with the company set to report earnings after market close today. Adobe is scheduled to report earnings after the closing bell Thursday, with traders anticipating a big move from the Photoshop maker's stock following the results. The main event of the week lands on Friday, with the expected IPO of Elon Musk's SpaceX (SPCX), its debut is expected to mark the largest public offering in history.
