Nasdaq, S&P 500, and Dow retreat as trade uncertainty and inflation jitters grip Wall Street
U.S. stock futures edged lower on Wednesday with investors closely monitoring the fragile U.S.-China trade discussions and awaiting the May consumer price index report for fresh clues on inflation trends. Futures on the S&P 500 slipped 0.2% to 6,032.50, while contracts on the Nasdaq 100 dipped 0.1% to 21,919.75. Dow Jones Industrial Average futures declined by 85 points, or 0.2%, to 42,826. With the major indices lingering near multi-month highs, market participants remain cautious, weighing geopolitical developments and inflation data ahead of next week's Federal Reserve policy meeting.
U.S.-China trade progress lifts sentiment but risks remain
Diplomatic momentum between Washington and Beijing provided a temporary boost to global equities after the two sides reached a tentative framework to resolve trade disputes. U.S. Commerce Secretary Howard Lutnick and China's trade representative confirmed progress on agreements covering rare earths exports and semiconductor access. Still, officials must now seek formal approval from President Trump and President Xi before implementation can proceed. U.S. officials warned that earlier optimism had been undercut by a pattern of both sides violating prior commitments, keeping markets on edge.
In Asia, equities reacted positively to the news, with Hong Kong’s Hang Seng advancing 0.77% and Japan’s Nikkei 225 rising 0.55%. However, U.S. equity futures reflected renewed caution, with S&P 500, Nasdaq 100, and Dow contracts each showing modest declines ahead of Wednesday’s open.
Inflation report in focus as markets eye tariff impact
The May consumer price index will serve as a key barometer of inflation pressures in the wake of escalating tariffs. Economists expect a 0.2% month-over-month rise in headline CPI and a 2.4% annual increase. Traders are bracing for any surprise acceleration that could alter the Fed’s interest rate trajectory. Treasury yields inched higher ahead of the release, with the 10-year yield up 1.8 basis points to 4.498% and the 2-year yield trading at 4.037%. Analysts cautioned that higher CPI readings could reignite rate-hike fears, even though consensus holds that the Fed will maintain its current cautious stance for now.
Small caps outperform amid easing recession fears
A notable bright spot in the U.S. market has been the resurgence of small-cap stocks. The iShares Russell 2000 ETF (IWM) climbed 0.54% to $214.51, testing its 200-day moving average for the first time since February. BTIG’s Jonathan Krinsky noted that fading concerns over the Trump tariff war’s potential to derail the U.S. economy have buoyed small-cap sentiment. Continued rotation into the Russell 2000 could sustain the market’s recent breadth improvement.
Quantum computing stocks rally after Nvidia CEO comments
The quantum computing sector drew renewed investor interest after Nvidia (NASDAQ:NVDA) CEO Jensen Huang declared that the industry had reached an inflection point. Shares of Quantum Computing Inc. (NASDAQ:QUBT) surged 8% to $16.29, while Rigetti Computing (NASDAQ:RGTI) gained 4%. Huang’s remarks at the VivaTech conference in Paris underscored growing confidence in the commercial potential of quantum technologies, further fueling gains in a sector already benefiting from AI-related momentum.
Big tech drives S&P 500 near record territory
Large-cap technology stocks continue to propel the broader market higher, with the S&P 500 nearing record highs. The Nasdaq Composite (NASDAQ:COMP) advanced 0.63% to 19,714.99 on Tuesday, while the S&P 500 climbed 0.55% to 6,038.81. Gains were driven by the so-called Magnificent Seven stocks — Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), Meta Platforms (NASDAQ:META), Tesla (NASDAQ:TSLA), and Nvidia — which collectively accounted for 62% of the S&P 500’s May rally.
Tesla stood out, rising more than 5.7% on Tuesday and poised to gain another 2.5% at Wednesday’s open, translating to a $24 billion boost in market capitalization. Optimism was sparked by CEO Elon Musk's announcement that Tesla’s self-driving robotaxis would be publicly available from June 22.
Stocks moving on earnings: GitLab, GameStop, Dave & Buster’s, Stitch Fix
Earnings results drove sharp moves in several individual stocks. GitLab (NASDAQ:GTLB) slumped 12% after its Q2 outlook disappointed despite beating Q1 expectations. GameStop (NYSE:GME) dropped 5% as Q1 revenue of $732.4 million fell short of consensus forecasts of $750 million. In contrast, Dave & Buster’s (NASDAQ:PLAY) jumped nearly 9% after reaffirming full-year guidance and reporting strong June trends, while Stitch Fix (NASDAQ:SFIX) advanced 7% on an improved revenue outlook.
Gold edges higher despite trade progress
Gold prices remained resilient even after the positive tone from U.S.-China trade talks. Futures for COMEX Gold (GC=F) rose 0.7% to approximately $3,366 per ounce. The metal’s strength suggests lingering caution among investors who remain wary of geopolitical risks and the durability of any trade deal. Gold has gained over 25% year-to-date, fueled by safe-haven demand amid ongoing tariff battles and broader macro uncertainty.
Europe’s FTSE 100, CAC 40, and DAX rise on improved sentiment
European equities mirrored the cautiously optimistic tone. The FTSE 100 opened up 0.2%, with strength in financials led by Lloyds, Standard Chartered, and Prudential, the latter gaining 2.3%. France’s CAC 40 and Germany’s DAX both advanced 0.16%, supported by easing global trade concerns and hopes of further economic stimulus measures.
IPO boom highlights investor appetite for AI and crypto
Investor appetite for new tech IPOs remains robust. Stocks tied to AI and cryptocurrency themes have dominated recent IPO performance. Circle (CRCL) surged over 240% from its IPO price, while CoreWeave (CRWV) soared nearly 300% since its March debut. Carson Group analysis of large IPOs since 2024 revealed tech IPOs returning an average of 108%, more than double the 49% return of non-tech IPOs. Private funding remains equally buoyant, with OpenAI raising $40 billion at a $300 billion valuation and xAI reportedly seeking $20 billion at a valuation exceeding $120 billion.
Currency markets watch CPI data as dollar holds steady
The U.S. Dollar Index (DXY) edged down 0.07% to 99.03 ahead of the CPI report. Commerzbank’s Michael Pfister argued that an upside CPI surprise might not translate into dollar strength, citing three key factors: market expectations of Fed policy inertia, global capital flows favoring equities over safe-haven demand for dollars, and potential profit-taking in an already crowded long-dollar trade.
Treasury yields climb cautiously as traders brace for inflation print
Bond markets signaled modest caution, with the 10-year yield rising to 4.498% and the 2-year yield at 4.037%. The upcoming CPI release is expected to show whether the Trump administration’s aggressive tariff strategy is starting to impact consumer prices more visibly. The yield curve remains closely watched for signs of potential economic stress or changing Fed policy expectations.
Corporate developments: Rolls Royce, GM, KKR
Outside the indices, corporate news drove notable stock moves. Rolls Royce (LSE:RR) gained over 1.5% to 849p after securing a U.K. government contract to build three small modular nuclear reactors (SMRs), expected to power 1 million homes for 60 years. The stock is up 57% year-to-date.
General Motors (NYSE:GM) unveiled a $4 billion U.S. manufacturing investment aimed at expanding capacity to over 2 million vehicles annually. Meanwhile, KKR (NYSE:KKR) announced a $1.7 billion acquisition of Assura, reinforcing its bullish outlook on European healthcare real estate.
Key catalysts ahead: CPI, crude inventories, budget data
Traders are watching a dense calendar of market catalysts Wednesday. The CPI release at 8:30 a.m. ET will be followed by U.S. weekly crude oil inventories at 10:30 a.m. and the federal budget report at 2:00 p.m. The Treasury will also auction $39 billion in 10-year notes at 1:00 p.m. With global bond yields rising and inflation concerns in focus, these events could further shape near-term market direction.
Nasdaq, S&P 500, and Dow poised for volatile session as headline risks mount
Heading into Wednesday’s trading, all eyes remain on whether the fragile U.S.-China trade progress will hold and whether the CPI print will inject fresh volatility into an already cautious market. With the Nasdaq Composite up 0.63% to 19,714.99, the S&P 500 at 6,038.81, and the Dow Jones Industrial Average at 42,866.87, equities remain near multi-month highs but vulnerable to shifts in sentiment. The coming hours will be pivotal in determining whether the rally can sustain or whether profit-taking and macro headwinds will spark a pullback.
