Wall Street ended the week on a downbeat note Friday, as a surge in Treasury yields and climbing oil prices refocused investor attention on persistent inflation and the Federal Reserve's next moves. The S&P 500 slipped 1.2% to 7,408.50, the Dow Jones Industrial Average lost 1.1% to 49,526.17, and the Nasdaq composite fell 1.5% to 26,225.14. The small-cap Russell 2000 underperformed, dropping 2.4%.
The 10-year Treasury yield added 13.8 basis points to reach 4.597%, while the 30-year yield jumped to 5.122%. Meanwhile, Brent crude oil advanced to near $109 a barrel, adding to inflationary pressures. These key benchmark moves weighed heavily on equities, as higher borrowing costs make stocks less attractive and threaten the recent rally fueled by artificial intelligence optimism and expectations of a pause in rate hikes.
Prediction markets reflected growing skepticism about Federal Reserve easing. On Kalshi, the probability of no rate cuts in 2026 held around 70%, while Polymarket showed similar odds near 69%. CME's FedWatch tool indicated roughly a 60% chance of a 25-basis-point rate hike by the January 2027 Federal Open Market Committee meeting, with December hike odds nearly even.
Inflation data reinforced the cautious outlook. The Bureau of Labor Statistics reported the consumer price index rose 3.8% year over year through April, with gasoline prices surging 28.4%. Producer prices jumped 1.4% in April, the largest monthly increase since March 2022. Oil supply concerns remain elevated after reports that President Donald Trump stated Chinese President Xi Jinping agreed Iran must reopen the Strait of Hormuz, though China has not committed to action. The strait previously moved about one-fifth of the world's oil and liquefied natural gas before U.S. and Israeli strikes on February 28.
Kenny Polcari, chief market strategist at Slatestone Wealth, noted the market will be testing incoming Fed Chair Kevin Warsh, as traders assess whether higher inflation allows room for rate cuts that have supported risk appetite. The Fed left its target range at 3.50% to 3.75% in April, citing still-elevated inflation partly due to global energy prices.
Next week brings critical events. Nvidia reports earnings on Wednesday, with its results seen as a bellwether for the AI chip industry. Chip stocks have rallied recently, but both AMD and Intel fell Friday alongside several AI-related names. Retail earnings are also on deck, with Walmart reporting Thursday and Target later in the week. Investors will scrutinize consumer health amid rising fuel and food costs. Yung-Yu Ma, chief investment strategist at PNC Financial Services Group, questioned consumer resilience in this environment.
Market breadth remains narrow. About one in five S&P 500 stocks have outperformed the index since its March 30 low, according to LSEG data cited by Reuters. Patrick Ryan, chief investment strategist at Madison Investments, described this as "not necessarily a healthy market."
Looking ahead, risks are two-sided. A further spike in oil or stalled Iran talks could push yields higher, pressuring growth stocks. Conversely, a reopening of the Strait of Hormuz, falling oil prices, or a balanced approach from Fed Chair Warsh could stabilize inflation expectations and allow stocks to recover. With yields near one-year highs, Wall Street may open Monday with reduced appetite for expensive equities and diminished confidence in Fed support.
