Wall Street's recent rally hit a wall on Wednesday as hotter-than-expected inflation data and a surge in oil prices pushed major indices lower. The S&P 500 slipped 0.4% from its Monday record high, while the Nasdaq composite fell 1.2% after its own all-time peak. The Dow Jones Industrial Average bucked the trend, edging up 73 points, or 0.2%, as technology and semiconductor stocks bore the brunt of the selling.
Inflation Data Dampens Rate Cut Hopes
The Bureau of Labor Statistics reported that the April Consumer Price Index (CPI) rose 0.6% month-over-month, bringing the annual rate to 3.8%. Core CPI, which excludes volatile food and energy prices, climbed 0.4% for the month. Energy costs were the primary driver, surging 3.8% and accounting for more than 40% of the monthly gain. This data dealt a blow to investor hopes for a smoother inflation path that could have paved the way for Federal Reserve rate cuts.
Oil Surge and Treasury Yields Climb
Adding to the market's woes, Brent crude oil jumped 3.6% to $107.97 a barrel amid ongoing tensions between the U.S. and Iran, which have effectively closed the Strait of Hormuz. The 10-year Treasury yield rose to 4.46% from 4.42%, as investors demanded higher returns to hold government bonds. This uptick in yields puts additional pressure on high-growth stocks, as their future profits are discounted more heavily.
Chip Stocks Lead Declines
The technology sector was the hardest hit, with the information-technology group dropping 2.1%, the worst performer among the S&P 500's 11 sectors. Chip stocks were particularly weak: Intel tumbled 8.6%, Micron Technology lost 6.1%, and CoreWeave gave up 7.7%. These declines followed outsized gains earlier this year fueled by artificial intelligence (AI) enthusiasm. Other notable losers included Qualcomm and Sandisk.
Fed Rate Cut Bets Fade
The Federal Reserve has maintained its target range of 3.50%-3.75% since its April meeting, stating that future policy will depend on incoming data. Following the latest CPI release, prediction markets show a sharp reduction in rate cut expectations. On Kalshi, the probability of zero rate cuts in 2026 stands at 58%, while Polymarket traders put the odds at 62.5%. For the upcoming June meeting, the probability of no move is nearly 98%.
Earnings Season Offers Mixed Signals
Despite the market's downturn, earnings season has been largely positive. With nearly all S&P 500 companies having reported, 84% have surpassed profit forecasts. The technology sector led with a 94% beat rate, according to DataTrek. Wedbush analyst Dan Ives called the earnings season a "wake-up call" for AI doubters, stating that "AI adoption is underway." However, concerns remain that if oil prices continue to climb, the market has little room for error.
Under Armour's latest results highlighted the challenges facing consumer brands. Shares plunged 20% after the company projected another revenue decline and issued earnings guidance well below Wall Street expectations. The brand is grappling with intense competition from Nike, Lululemon, and Adidas, as well as a price-sensitive consumer environment.
In contrast, Zebra Technologies surged after reporting a solid first quarter and raising its outlook. CEO William Burns expressed confidence in the company's automation portfolio, which helps customers streamline operations. This dichotomy underscores the divide between companies tied to productivity gains and AI infrastructure versus those facing headwinds from tariffs and consumer caution.
Looking ahead, Cisco Systems is set to report after Wednesday's close, with options pricing in a swing of nearly 8% by Friday. The next major data point is the CPI release on June 10, followed by the Fed's rate decision on June 16-17. Until then, oil prices remain a key focus for investors.
