Stocks retreated on Friday, with the Nasdaq Composite bearing the brunt of the selloff as a surge in oil prices and a spike in Treasury yields interrupted the AI-fueled rally that had dominated earlier in the week. By late morning trading, the Dow Jones Industrial Average had fallen 0.82% to 49,652.90, the S&P 500 declined 0.80% to 7,441.37, and the Nasdaq Composite dropped 1.25% to 26,303.15.
This pullback stands out from typical profit-taking sessions. Yields on longer-dated Treasuries climbed to fresh year-to-date highs, with the benchmark 10-year note reaching 4.568%. The rise in borrowing costs is a headwind for growth stocks, which rely heavily on projected future earnings for their valuations.
Oil markets pushed higher amid escalating geopolitical tensions. Brent crude rose 2.4% to $108.22 a barrel, while U.S. West Texas Intermediate advanced 2.4% to $104.03. The move came after remarks from U.S. President Donald Trump and Iran's foreign minister dimmed hopes for a swift resolution to recent ship attacks and seizures near the strategic Strait of Hormuz.
Inflation pressures continued to build. The Labor Department reported that the April consumer price index climbed 0.6%, pushing the year-over-year increase to 3.8%. Core CPI, which excludes food and energy, rose 2.8% from a year ago. Energy prices surged 17.9% over the 12-month period. Meanwhile, the producer price index jumped 1.4% in April, bringing the annual gain to 6.0%. Excluding food, energy, and trade services, final demand prices increased 4.4% over the past year.
The inflation data weighed on sentiment, with Kiran Ganesh at UBS Global Wealth Management noting that markets have begun to price in some risk of central banks hiking rates. This shift hit the stocks that had driven recent gains hardest. Nvidia and AMD both tumbled over 4%, while Intel sank 6.8%. The Philadelphia semiconductor index dropped 4%. The Cboe Volatility Index, Wall Street's fear gauge, rose to 18.8.
Despite the inflation concerns, prediction markets still see the Federal Reserve holding rates steady in June. Kalshi contracts gave a 96% probability of no change and just a 3% chance of a quarter-point cut. On Polymarket, the odds of no move stood at 98%.
Consumer spending data offered a mixed picture. April retail sales climbed 0.5%, matching forecasts, with core retail sales rising by the same amount. However, the increase partly reflected higher prices rather than stronger demand. Import prices surged 1.9% in April, adding to cost pressures.
Next week's earnings reports are now in focus. Nvidia's results are due Wednesday, with Walmart, Home Depot, Target, and TJX also reporting. These reports will provide a key pulse check on consumer spending. As Yung-Yu Ma of PNC Financial noted, the key question for retailers is how resilient the consumer remains.
The outlook remains uncertain. If the Strait of Hormuz reopens, oil prices fall, or economic data softens, bonds could stabilize and tech stocks might find relief. Conversely, if energy costs continue to feed into May inflation and yields climb further, markets may begin to factor in not only a prolonged Fed pause but also the possibility of tighter policy ahead. For now, investors are caught between chasing the AI trade and grappling with inflation concerns that are steering the tape.
