U.S. Stock Market Stabilizes Following Positive Inflation Report

U.S. stock markets experienced a steady performance on Wednesday as a recent report indicated that the tariffs imposed by the Trump administration have not significantly impacted inflation levels, at least for the time being. The S&P 500 index showed little movement in early trading, hovering just 1.7% below its record high achieved in February. Meanwhile, the Dow Jones Industrial Average saw a slight decline of 46 points, equating to a 0.1% drop, while the Nasdaq composite index rose by 0.2%.

The bond market reacted more robustly, with Treasury yields declining following the inflation report which revealed a smaller-than-expected increase in consumer prices. In May, prices rose by 2.4% compared to the same month last year, up from April's rate of 2.3%. This figure was below the anticipated 2.5% increase that Wall Street had projected. Concerns had been mounting that the extensive tariffs could lead to a renewed surge in inflation, particularly after it had nearly returned to the Federal Reserve's target of 2% from a high of over 9% two years ago.

Despite these fears, experts caution that the full effects of the tariffs may take months to manifest. For now, many companies appear to be utilizing existing inventory rather than transferring increased costs from new imports to consumers.

In related economic developments, financial markets showed only muted reactions to the conclusion of trade discussions between the United States and China held in London. President Trump announced that China would provide rare-earth minerals and magnets to the U.S., while the U.S. would allow Chinese students to study at American universities, although an agreement from China's leadership is still pending. Trump expressed optimism about future cooperation, stating that both nations would work together to enhance trade relations.

Investors had hoped for more comprehensive agreements that could lead to substantial tariff reductions, potentially preventing an economic downturn. Such expectations have contributed to the S&P 500's recovery from a previous decline of approximately 20% earlier in the year, bringing it close to its all-time high.

On Wall Street, shares of Chewy fell sharply by 12% after the pet supply retailer reported earnings that disappointed analysts. Conversely, Tesla's stock price rose by 2%, recouping some losses from the previous week, which had been fueled by concerns over CEO Elon Musk's deteriorating relationship with the Trump administration. Musk has since softened his earlier comments, indicating they may have been overly harsh.

In the bond market, the yield on the 10-year Treasury note decreased from 4.47% to 4.43%. Shorter-term yields, which are more closely aligned with anticipated Federal Reserve actions regarding interest rates, saw even greater declines. The latest inflation data has heightened expectations that the Federal Reserve may consider lowering its key interest rate at least twice before the end of the year.

This year, the Federal Reserve has maintained steady interest rates after making cuts at the end of the previous year. The central bank is closely monitoring the inflationary impact of the tariffs, as reducing interest rates could further exacerbate inflation while simultaneously providing an economic boost.

Globally, stock markets showed moderate gains across Europe and Asia, with South Korea's Kospi index leading the way with a 1.2% increase.