Traders pulled back from risk assets, with a torrid run in US equities hitting a wall as April inflation data came in hotter than economists' estimates and worsening tensions between Washington and Iran sent oil prices higher.
The S&P 500 Index fell 0.2% on Tuesday in New York, while the Nasdaq 100 Index slid 0.9%. Technology stocks were the biggest laggards after weeks of outsized gains, with heightened risks around geopolitics and inflation adding another level of uncertainty for markets already contending with elevated valuations. The Philadelphia Semiconductor Index dropped 0.9% after surging some 60% in six weeks.
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For a third consecutive day, the share of S&P 500 companies making new 52-week lows eclipsed those notching 52-week highs despite the proximity of the benchmark to its last record, according to data from Thomas Thornton, president and founder of Hedge Fund Telemetry LLC. Even with stocks setting a string of highs, the poor market underpinnings reflect the fragility of the gains, with equity benchmarks being driven by a small share of stocks related to the artificial intelligence theme.
US inflation accelerated in April, driven by the climb in gasoline prices since the start of the Iran war. The consumer price index rose 3.8% from a year earlier, according to Bureau of Labor Statistics data out Tuesday, marking the fastest pace since 2023. Prices were up 0.6% from a month earlier.
The core CPI, which excludes food and energy, increased by a stronger-than-expected 0.4% from March and 2.8% from a year earlier, boosted in part by a statistical quirk in the report's measure of rents resulting from the 2025 government shutdown.
"Despite coming in hotter than expected, the rise in consumer prices could have been much worse than this given Middle East tensions," said Jeff Buchbinder, chief equity strategist at LPL Financial, whose firm last month overweighted US equities and technology shares on robust earnings growth.
Pressures are on the rise after US President Donald Trump rejected Iran's latest peace offer and called Iran's response to his proposal a "piece of garbage," warning that the ceasefire was on "life support." Shipping traffic in the Strait of Hormuz remained at a standstill, sending oil prices once again above $100 a barrel.
So far, though, profits have largely been drowning out the noise. Even as an overheating stock rally raises the risk of a painful reversal, most Wall Street pros remain overwhelmingly bullish, with historically strong corporate earnings anchoring their views. Global profit growth is at a four-year high, driven by technology companies, per Deutsche Bank AG's Binky Chadha. Corporate America has outstripped expectations by the widest margin outside the Covid-19 era since at least 2013, according to Bloomberg Intelligence data.
"Inflation is likely to take a back seat over the coming months as investors remain focused on earnings, economic growth, and the AI-driven capex cycle," said Tim Urbanowicz, chief investment strategist, Innovator ETFs from Goldman Sachs Asset Management, in an email. "The Fed has been clear that it is willing to look through any temporary inflation spike tied to the Iran conflict, and that remains the key consideration for investors in the near term."
A multitude of Wall Street firms in recent weeks - including RBC Capital Markets, HSBC Holdings Plc, and Barclays Plc - have upgraded their year-end S&P 500 forecasts on that strength. Veteran strategist Ed Yardeni raised his outlook to the highest among peers, expecting the gauge to reach 8,250 by year-end.
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"Earnings, the AI narrative has been overriding the whole geopolitical oil situation," JPMorgan Chase & Co.'s Dubravko Lakos-Bujas said in a Bloomberg Television interview. "Now obviously, if you fast forward another four or five weeks and the situation remains unresolved, then you get complacency."
In individual company news, eBay Inc. rejected a $56 billion takeover offer from GameStop Corp. Chief Executive Officer Ryan Cohen, calling the unsolicited bid "neither credible nor attractive."
Hims & Hers Health Inc. shares sank 14% after the telehealth firm reported a first-quarter loss and sales that missed Wall Street estimates. It faces higher costs associated with its strategic pivot to branded weight-loss medications. Shares of Quantum Computing Inc. soared 16% after the application software developer reported revenue for the first quarter that beat the average analyst estimate.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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