Wall Street ended the week mostly unchanged as investors weighed persistent inflation pressures, surging Treasury yields, and Trump’s visit to China, which concluded without major breakthroughs.
Underlying inflation pressures increased in April as the Consumer Price Index (CPI) rose to 3.8%, highlighting core inflation pressures across the economy. That was followed by the Producer Price Index (PPI) rising 6.0% annually. This acceleration, driven by a 15.6% jump in gas prices and higher service costs, exceeded expectations, indicating persistent inflationary pressures are to be expected near term.
Meanwhile, Trump concluded his visit to China without major breakthroughs on trade or Iran, though both Washington and Beijing signaled a willingness to maintain stable economic relations and strengthen cooperation.
For the week, the Dow lost 0.17% and the S&P added 0.13%, while the Nasdaq Composite dipped 0.08%.
Future Wealth’s View
The market is almost betting that the war doesn’t impact corporate earnings. Trump and Xi agreed the Strait must stay open. But, the Strait is still closed. The higher CPI and the PPI have changed the equation. Energy inflation could drop if the Strait opens but Services inflation will remain high – Services prices reflect wages and rents. They will not reverse when the Strait reopens. A rising PPI means the price shock has moved upstream into production costs – Industrials, consumer staples, and transport prices will be the next to absorb the rising costs.
The market is making a concentrated bet that AI infrastructure wins regardless of inflation. That works until Nvidia reports on May 20. If Nvidia reiterates what the market is expecting, the narrow rally will get another leg. If Nvidia disappoints, we could see a massive sell off in semiconductor stocks and the Nasdaq.
In their earnings call earlier this week, Chris Kempczinski, Chairman and Chief Executive Officer of McDonalds stated that “we’re seeing solid growth, good growth with higher income and also gaining share with higher income for us…the low income is absolutely still declining.”
The wealthy are feeling rich from the stock market gains but middle to lower income households have little to celebrate. A sell off in the stock market could stop the wealthy from supporting the K shaped economy.