US stocks opened lower on Tuesday, led by declines in technology shares. The US Consumer Price Index for April rose 3.8% year-over-year, marking the highest level since May 2023, while crude oil prices continued to climb. The market remained focused on developments in US-Iran relations.
The Dow Jones Industrial Average fell 10.55 points, or 0.02%, to 49,693.92. The Nasdaq Composite dropped 187.99 points, or 0.72%, to 26,086.13, and the S&P 500 declined 19.90 points, or 0.27%, to 7,392.94.
West Texas Intermediate crude futures rose 3% on Tuesday, surpassing $101 per barrel. Brent crude also increased by 3%, breaking above $107 per barrel. This followed remarks from former US President Donald Trump, who described a month-long ceasefire agreement with Iran as "unbelievably weak" and stated that after rejecting Tehran's "unacceptable" counter-proposal, the deal was now "on massive life support."
Trump's latest comments contributed to the upward momentum in oil prices.
In its latest counter-proposal, Iran insisted on war reparations, full sovereignty over the Strait of Hormuz, the unfreezing of Iranian assets, and the lifting of sanctions.
Wall Street had just experienced a positive trading session, with both the S&P 500 and Nasdaq Composite reaching record highs.
A robust earnings season has continued to drive the stock market higher in recent sessions. Marci McGregor, Chief Investment Office Portfolio Strategist at Merrill and Bank of America Private Bank, expressed continued optimism about the overall market.
She stated, "If the market shows weakness after such a strong rebound from the March lows, I would view it as a buying opportunity because the current market is driven by corporate profits, capital expenditures, and a strong labor market. We have many reasons to remain optimistic."
On the economic front Tuesday, the US April CPI reached its highest level in three years.
Prices paid by consumers for various goods and services rose at a faster-than-expected pace in April, raising further concerns about the impact of inflation on the US economy.
The US Bureau of Labor Statistics reported on Tuesday that, after seasonal adjustment, the Consumer Price Index increased 0.6% month-over-month and 3.8% year-over-year in April. The monthly increase met expectations, but the annual rate was 0.1 percentage point higher than the median forecast in a Dow Jones survey.
Excluding food and energy, the core CPI rose 0.4% month-over-month and 2.8% year-over-year, indicating that while inflation remains well above the Federal Reserve's 2% target, a significant portion of the pressure stems from non-core areas, particularly energy.
This overall annual inflation rate is the highest since May 2023, up 0.5 percentage points from March. The core annual inflation rate increased by 0.2 percentage points.
Energy prices were again a major driver of the inflation surge, rising 3.8%, while food prices increased by 0.5%. Over the past 12 months, energy prices have surged 17.9%, food prices are up 3.2%, and the gasoline price index has risen 28.4% year-over-year.
Although energy, particularly gasoline, was a primary factor pushing overall inflation higher, inflationary pressures also emerged from several other areas.
Housing costs rose 0.6%, the sensitive apparel category increased 0.6%, airline fares accelerated by 2.8% (up 20.7% over 12 months), and import tariffs appear to have affected other sectors, with household goods and operations prices rising 0.7%.
The report also contained bad news for workers: real average hourly earnings fell 0.5% for the month and were down 0.3% year-over-year.
The latest inflation data arrives as the Federal Reserve stands at a crossroads. The central bank has kept its benchmark interest rate unchanged throughout the year, amid disagreements among policymakers over the direction the bank should take and how to communicate its intentions.
In late April, the Fed once again voted to hold rates steady, but with four dissenting votes—the highest number since 1992. Fed Governor Stephen Milan voted against again, favoring a 25 basis point rate cut, while three regional Fed presidents objected to language in the statement that markets interpreted as signaling the next move would be a rate cut.
Meanwhile, incoming Fed Chair Kevin Warsh has advocated for lower interest rates, a stance difficult to reconcile with the surge in inflation following the outbreak of conflict with Iran. Energy prices have risen sharply, with oil prices exceeding $100 per barrel and the national average gasoline price reaching $4.50 per gallon, according to AAA.
The market widely expects the Fed to hold rates steady this year, with market pricing reflecting a low probability of a rate hike. However, according to CME Group data, traders have increased their expectations for a rate hike before the end of the year.
Comments