Recent economic data does not suggest a sizable upward influence on inflation from tariffs currently imposed by the U.S., specifically under the leadership of President Donald Trump. There was a slight fluctuation in the stock market near record highs amid such findings. The lack of marked inflationary surge, despite tariffs, is presenting an interesting development in the U.S. financial space.
The S&P 500 index observed a 0.2% uptick during midday trading, showing a nearly negligible gap of 1.5% from its peak level achieved in February. The Dow Jones Industrial Average also noted a slight rise earlier, about 0.3% or 144 points. The Nasdaq composite index saw a similar increment of 0.2%.
Interestingly enough, a more significant shift was seen in the bond market. Treasury yields gently dropped following a report that revealed inflation increased slightly less than economists initially predicted for the previous month.
In May, U.S. customers witnessed a 2.4% surge in prices compared to a year earlier. These figures reveal a slight increase from the inflation rate of 2.3% seen in April. However, these inflation figures fell short of Wall Street’s expectation of 2.5%.
Market observers have expressed concerns that Trump’s broad spectrum of tariffs could potentially spin inflation back up, following a period where it appeared to be inching closer to the Federal Reserve’s targeted 2% mark, a significant decrease from its peak at over 9% three summers ago.
Yet, as of now, these predictions have not materialized, although economists caution that the full ramification of Trump’s tariffs might take a few more months to register. It appears that many businesses, in the meantime, might be utilizing previously stored inventory rather than having to incorporate higher costs from fresh imports.
President Trump recently announced that China will continue its supply of rare-earth minerals and magnets to the U.S. Additionally, he confirmed that Chinese students will be given access to U.S. universities, a move pending approval from both the U.S. and Chinese leadership.
Trump expressed optimism over negotiations, affirming that he and President Xi Jinping would maintain close cooperation to make Chinese markets more accessible to American trade. He emphasized that such a move could have mutual benefits, contributing positively to both economies.
Nonetheless, investors are still fervently hoping for a comprehensive trade deal. Such a deal could potentially defuse the brewing tensions between these two global economic giants and usher in an era of positive bilateral trade relations.
The anticipation for trade agreements between the U.S. and various worldwide nations has played a key role in the near recovery of the S&P 500 index to its all-time high, despite a roughly 20% tumble a few months prior. In the absence of such agreements, there’s a looming fear of a recession incited by Trump’s heavy tariffs, coupled with a potential rise in inflation.
Among individual companies, Chewy, a pet supplies retailer, saw its shares plummet by almost 10% following a lower-than-expected quarterly profit report. Despite this, market expectations remained high because the stock had already rallied by roughly 37% for the year until now.
Electric-car maker Tesla saw an uptick of 1.6% in its shares, providing a positive reinforcement to the market. This is a reversal of heavily losses experienced the week before, which were caused by fears about business decline due to the fallout of Elon Musk’s relationship with Trump.
In the bond market, the ten-year Treasury yield dropped slightly to 4.44% from 4.47%. Short-term yields, which often reflect predictions regarding Federal Reserve adjustments to overnight interest rates, also fell.
The unexpected positive readjustment of inflation has fueled Wall Street expectations that the Federal Reserve may lower the primary interest rate at least twice before year-end. Over the course of this year, the Fed has maintained a steady interest rate after a reduction at the end of the previous year.
The Federal Reserve is closely watching the inflationary implication of Trump’s tariffs before deciding to adjust interest rates. Declining rates have the potential to push inflation even higher, as they usually spur the economy.
Meanwhile, international stock markets also noted humble increments, predominantly in Europe and Asia. One of the highest jumpers was South Korea’s Kospi, which soared 1.2%.