U.S. equity markets closed lower on Friday, ending a streak of record highs as a surge in oil prices and a sharp rise in bond yields dampened investor sentiment. The S&P 500 fell 1.2%, the Dow Jones Industrial Average declined 1.1%, and the Nasdaq Composite dropped 1.5%. Despite the pullback, the S&P 500 managed to post a modest weekly gain of 0.1%, marking its seventh consecutive week of advances.
The selloff followed a week of mixed economic data and heightened inflation concerns. The April consumer price index rose 0.6%, pushing the annual inflation rate to its highest level in three years. Energy costs accounted for more than 40% of that increase, underscoring the impact of rising oil prices on the broader economy. Kansas City Fed President Jeffrey Schmid described inflation as the most "pressing risk" for the economy, reinforcing worries that the Federal Reserve may struggle to ease monetary policy.
Treasury yields climbed sharply, with the 10-year note rising 13.8 basis points to 4.597%, while the 30-year bond yield added 10.9 basis points to 5.122%. The move higher in yields weighed on growth stocks, particularly in the technology sector, which had led the market to record levels just a day earlier. Nvidia bucked the trend, jumping 4.4% on news that its H200 chips received U.S. approval for sale in China, but other chipmakers such as Qualcomm, Intel, and Micron fell between 3.4% and 6.1%.
Oil prices surged, with U.S. crude settling up 4.2% at $105.42 a barrel and Brent crude gaining 3.35% to $109.26. The spike in energy costs added to inflation concerns and pressured sectors sensitive to higher input prices. The Russell 2000, which tracks small-cap stocks, fell 2.4% on the day and for the week, reflecting a broader risk-off tone.
Investor attention now turns to a busy week ahead. Nvidia is scheduled to report fiscal first-quarter earnings on Wednesday, May 20, at 5 p.m. ET. Chief Financial Officer Colette Kress will provide written remarks before the conference call. The results are seen as a key barometer for the artificial intelligence trade, which has powered much of this year's market rally. Analysts will be watching closely for signs that AI demand remains robust enough to sustain Nvidia's growth and support the broader semiconductor sector.
Retail earnings are also on deck, with Home Depot, Lowe's, Target, TJX, and Walmart all reporting in the coming days. These results will offer insight into consumer spending patterns and whether households are managing higher prices or pulling back. The data will be critical for assessing the health of the consumer-driven economy.
The Federal Reserve will release the minutes from its April 28-29 Federal Open Market Committee meeting on Wednesday at 2 p.m. ET. Traders will scrutinize the minutes for any clues about how concerned policymakers are about inflation and whether they are leaning toward delaying rate cuts. The recent jump in yields has already reignited speculation about the Fed's next move.
Equity fund flows remained positive, with U.S. equity funds attracting $22.37 billion in the week ending May 13, the most in three weeks. About 83% of S&P 500 companies that have reported first-quarter earnings have beaten profit expectations, according to LSEG data. However, the combination of rising oil prices, higher yields, and sticky inflation poses risks to the rally, particularly for high-growth stocks that have benefited from low rates.
Market participants are wary that the pullback could deepen if Nvidia's earnings disappoint, retail outlooks weaken, or the Fed minutes take a hawkish tone. "The market had gotten way ahead of itself," said Kenny Polcari, chief market strategist at Slatestone Wealth, noting that bonds and inflation data are now driving sentiment. "Inflation remains sticky."
