(Updates to mid-afternoon trading)
* Indexes down: Dow 0.01%, S&P 500 0.54%, Nasdaq 1.37%
* April Consumer Price Index hotter than expected
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The S&P 500 and Nasdaq eased from record highs due to hotter-than-expected inflation data and escalating U.S.-Iran tensions. Investors were taking money off the table near the end of the first-quarter earnings season.
The U.S.-Iran conflict has disrupted crude supply, leading to elevated oil prices. This oil shock is contributing to accelerated inflation, with energy prices soaring and impacting transportation costs, which in turn affects the prices of other goods.
The disappointing CPI report, showing relatively high inflation, reinforces the notion that the Federal Reserve is unlikely to lower interest rates this year. Market pricing indicates a rising likelihood of a rate hike by December.
Semiconductor stocks are weakening due to concerns that the AI-driven rally may have gone too far, too fast. Hotter-than-expected inflation data and geopolitical uncertainty are weighing on investor sentiment, causing a sell-off in tech and chipmakers.
Inflation is rapidly eating into American wages, as the pace of wage gains has been slowing. Inflation rose faster than wage growth in April, potentially worsening affordability pressures for consumers.
* Zebra Technologies jumps on annual sales growth forecast raise
* GameStop dips after eBay rejects takeover bid
* Humana surges on 36% price target hike
By Stephen Culp and Ragini Mathur
NEW YORK, May 12 (Reuters) – The S&P 500 and the Nasdaq eased from record highs on Tuesday as hotter-than-expected inflation data and an increasingly tenuous U.S.-Iran ceasefire prompted investors to take money off the table near the end of a robust first-quarter earnings season.
Weakness in tech shares dragged the Nasdaq down the most, while healthcare stocks, buoyed by a jump in Humana, helped limit the Dow’s losses.
Despite the selloff, the S&P 500 and the Nasdaq remain close to all-time highs.
As reporting season wraps up, investors are increasingly focused on valuations, macroeconomics and geopolitical developments.
While the PHLX Semiconductor index tumbled 4.8%, the index has soared 62.4% this year, benefiting from the fervor about artificial intelligence.
CONSUMER PRICE RISE DISAPPOINTS Economic data showed consumer prices rising at a faster pace than analysts anticipated as the closure of the Strait of Hormuz due to the war with Iran continued to disrupt crude supply.
“It was a slightly disappointing CPI report that showed inflation is relatively high, and it reinforces the notion that the (U.S. Federal Reserve) is not going to be able to lower rates this year,” said Oliver Pursche, senior vice president at Wealthspire Advisors, in New York.
“We’ve seen this multiple times this year, where it’s kind of the two steps forward, one step back market cycle,” Pursche added. “Some of the chipmakers that are selling off the most, they’re still up sharply year-to-date.” That war, in its 11th week, showed no signs of a near-term resolution. U.S. President Donald Trump declared the truce was “on life support” after Tehran rejected a U.S. proposal to end the conflict, sticking with a list of demands Trump called “garbage.” The notion of a protracted conflict raises the probability that spiking energy prices could metastasize into broader, more entrenched inflation. That has all but squelched any hopes for an interest rate cut from the Fed this year under the presumed chairmanship of Trump nominee Kevin Warsh, whom the U.S. Senate confirmed on Tuesday.
The odds of a rate hike are rising. Financial markets are pricing in a 31.5% likelihood that the central bank will implement a 25-basis-point increase to its Fed funds target rate in December, up from 21.5% on Monday, according to CME’s FedWatch tool. Trump is scheduled to travel to Beijing this week to meet Chinese counterpart Xi Jinping to address a wide array of issues, including tariffs, U.S. military aid to Taiwan, China’s potential role in brokering a peace deal with Iran, and the extension of a trade agreement regarding critical rare earth metals.
The Dow Jones Industrial Average fell 4.18 points, or 0.01%, to 49,700.29, the S&P 500 lost 40.25 points, or 0.54%, to 7,372.82 and the Nasdaq Composite lost 360.64 points, or 1.37%, to 25,913.48.
Of the 11 major sectors in the S&P 500, tech suffered the largest percentage loss, while healthcare led the gainers.
Humana advanced 5.4% following Bernstein’s 36% price target hike. GameStop dipped 1.3% following eBay’s rejection of the meme stock trailblazer’s $56 billion takeover bid.
Zebra Technologies jumped 14.4% after the barcode scanner maker raised its annual sales growth forecast, betting on robust demand for its products that help automate manufacturing workflows. Hims & Hers Health tumbled 12.5% after the telehealth firm missed Wall Street estimates for first-quarter revenue and posted a surprise loss.
Venture Global jumped 16.7% after the LNG exporter raised its annual adjusted core profit forecast.
Declining issues outnumbered advancers by a 2.12-to-1 ratio on the NYSE. There were 116 new highs and 114 new lows on the NYSE.
On the Nasdaq, 1,493 stocks rose and 3,178 fell as declining issues outnumbered advancers by a 2.13-to-1 ratio.
The S&P 500 posted 14 new 52-week highs and 28 new lows while the Nasdaq Composite recorded 45 new highs and 140 new lows.
(Reporting by Stephen Culp; Additional reporting by Ragini Mathur and Utkarsh Hathi in Bengaluru; Editing by Rod Nickel)
