U.S. stock markets opened lower on Tuesday, with the Nasdaq bearing the brunt of the selloff, after April inflation data came in hotter than anticipated. The Consumer Price Index (CPI) rose 0.6% month-over-month and 3.8% year-over-year, driven largely by a 3.8% jump in energy costs. This dashed expectations for imminent Federal Reserve rate cuts, sending Treasury yields higher and pressuring growth stocks.
The S&P 500 slipped 0.4% from its record close the previous day, while the Dow Jones Industrial Average shed 185 points by mid-morning. The Nasdaq Composite fell 0.6%, reflecting a broad retreat in technology shares. Energy prices were the primary culprit, with gasoline surging 5.4% in April and 28.4% year-over-year, according to the Bureau of Labor Statistics. Core CPI, which excludes food and energy, rose 0.4% in April, pushing the annual rate to 2.8%. Shelter costs climbed 0.6%, and airline fares increased 2.8%, indicating that price pressures extended beyond energy.
In response to the data, the two-year Treasury yield rose to 3.98%, while the 10-year yield touched 4.45%. The dollar index gained 0.3%. These moves weighed heavily on high-growth technology stocks, which are particularly sensitive to interest rate expectations. Micron Technology dropped 3.9%, CoreWeave fell 5%, and Broadcom lost 1.6%, as traders rotated out of names with high exposure to rate movements.
Market participants now expect the Federal Reserve to maintain its benchmark interest rate at 3.50%-3.75% through 2027, according to Reuters. The central bank held rates steady at its last meeting, and Tuesday's inflation data reinforces a cautious stance. Edward Jones senior economist James McCann described the economy as "resilient" despite the energy shock, while Peter Cardillo, chief market economist at Spartan Capital Securities, flagged concerns about "energy inflation spreading." Guggenheim's Matt Bush pointed to the Fed's "wait-and-see approach."
The outlook remains uncertain. If crude oil prices decline and stay low, some pressure on CPI could ease, potentially supporting growth stocks. However, if oil remains elevated, pushing up costs for flights, utilities, groceries, and wages, a broader selloff beyond tech could occur. Adam Sarhan, chief executive at 50 Park Investments, warned that "inflation is here to stay" unless oil retreats.
Investors are now looking ahead to the next key data point: the May CPI report, scheduled for release on June 10 at 8:30 a.m. Eastern. Until then, market sentiment is likely to remain cautious, with the Fed's next moves hinging on further inflation readings.
