Wall Street reached fresh milestones on Wednesday, with the S&P 500 and Nasdaq Composite closing at record highs as a rally in semiconductor and artificial intelligence stocks overshadowed a surprisingly hot inflation reading. The S&P 500 rose 0.58% to 7,444.14, while the Nasdaq advanced 1.21% to 26,404.74. The Dow Jones Industrial Average lagged, slipping 0.13% to 49,693.63.
The market action underscored a bifurcated session: investors continued to embrace the earnings narrative from big technology companies, even as macroeconomic signals turned more hawkish. The Producer Price Index surged 1.4% in April, the largest monthly gain since March 2022, according to the Labor Department. On an annual basis, the index jumped 6.0%. Services accounted for nearly 60% of the monthly increase, while goods prices rose 2.0%, with gasoline soaring 15.6%.
The inflation data quickly dampened expectations for Federal Reserve rate cuts. UBS Global Wealth Management now projects the next rate reduction for December 2026, followed by another in March 2027—a notable delay from its previous forecast of cuts in September and December this year. According to CME FedWatch data cited by Reuters, traders now see an 87.4% probability that the Fed will hold rates steady at its September meeting. Prediction markets echoed this sentiment: on Polymarket, the probability of no rate cuts through 2026 stood at roughly 69%, while a single cut was priced at just 17%.
Despite the inflation headwind, technology stocks remained resilient. “Technology remains resilient,” said Ryan Detrick, chief market strategist at Carson Group, in comments to Reuters. He noted that chip stocks “came soaring back” after Tuesday’s decline. Six of the Magnificent Seven AI-linked megacaps ended the day higher. Among the standout performers, shares of Nebius Group surged after the AI cloud company reported quarterly revenue that jumped nearly eightfold. EchoStar also gained after securing Federal Communications Commission approval for a $40 billion spectrum deal with SpaceX and AT&T.
Geopolitical developments provided additional fuel for the rally. President Donald Trump arrived in Beijing alongside Nvidia CEO Jensen Huang and Tesla CEO Elon Musk, ahead of a two-day summit with Chinese President Xi Jinping. According to Reuters, the discussions are expected to focus on granting U.S. firms greater access to the Chinese market and maintaining a delicate trade truce. However, unresolved issues remain, including China’s warnings over Taiwan and potential new U.S. restrictions on chipmaker exports.
In a sign of growing optimism on corporate earnings, Morgan Stanley raised its year-end 2026 S&P 500 target to 8,000, up from its previous 7,800 forecast. The firm described the move as driven by an “earnings story, not a multiple expansion one,” citing AI-fueled efficiency gains, solid pricing power, and a robust first-quarter profit season.
On the downside, Coinbase and Strategy both retreated as bitcoin and ether prices softened. The broader market remained cautious about the inflation outlook. “I would just be careful” with high rates and persistent inflation, said Jim Baird, chief investment officer at Plante Moran Financial Advisors, in comments to Reuters. He noted that the latest PPI data only strengthens the case for the Fed to stay on hold. Boston Fed President Susan Collins echoed that sentiment, warning that a rate hike is not off the table if inflation does not abate.
For now, investors are betting on tech and chips rather than on rate cuts. But if inflation data continues to come in hot, that narrative may not hold indefinitely.
