By Ragini Mathur, Shashwat Chauhan and Utkarsh Hathi
May 13 (Reuters) – The S&P 500 retreated further from record highs on Wednesday, as hotter-than-anticipated producer prices reinforced bets that the Federal Reserve would keep monetary policy restrictive all through this year.
U.S. producer prices increased more than expected in April, posting their biggest gain since early 2022, the latest indication that inflation was accelerating amid the war with Iran.
The data comes a day after U.S. consumer inflation posted the sharpest increase in three years in April and knocked the S&P 500 and the Nasdaq from their record highs.
“This is very challenging data in terms of inflation and it just simply means that Mr. (Kevin) Warsh is not likely to move on cutting rates anytime soon, and perhaps for the remainder of the year,” said Peter Cardillo, chief market economist at Spartan Capital Securities.
Traders now expect the Fed to stay on hold all through the year and a 34.3% chance of a rate hike by December, compared with an around 15% chance seen a week ago, according to the CME FedWatch Tool.
Markets are expecting a potentially more hawkish central bank under Kevin Warsh, whom the Senate confirmed to the board on Tuesday and could move to approve as chair as soon as Wednesday. Jerome Powell’s term ends on Friday.
Meanwhile, President Donald Trump landed in Beijing accompanied by an entourage that included Nvidia’s Jensen Huang and Elon Musk, after pledging to urge China’s Xi Jinping to “open up” to U.S. business at the start of their two-day summit.
Trump had said ahead of the high-stakes summit that he did not expect to ask Xi to help resolve the conflict with Tehran.
Oil prices were muted on the day after rising for three straight sessions as investors awaited any updates on the Iran front.
Wall Street has been wary that a prolonged conflict could keep energy prices elevated, adding to inflationary pressures and complicating the U.S. Federal Reserve’s policy decisions.
At 09:45 a.m. ET, the Dow Jones Industrial Average fell 249.05 points, or 0.50%, to 49,511.51, the S&P 500 lost 13.91 points, or 0.19%, to 7,387.05 and the Nasdaq Composite gained 3.40 points, or 0.01%, to 26,091.60.
Nine of the eleven main S&P 500 sectors traded in the red, with the S&P 500 utilities sector leading declines with a 1.6% fall.
A chip-stock selloff that weighed on markets in the previous session stabilized on Wednesday. The Philadelphia SE Semiconductor index gained 1.7%.
Among other movers, Nebius Group jumped 10% after the AI cloud firm reported a nearly eightfold rise in quarterly revenue.
Earlier in the day, Morgan Stanley raised its annual target for the S&P 500 index to 8,000 from 7,800, saying U.S. stocks have enough room to rally as companies continue to post strong earnings.
Declining issues outnumbered advancers by a 2.39-to-1 ratio on the NYSE, and by a 1.89-to-1 ratio on the Nasdaq.
The S&P 500 posted 11 new 52-week highs and 32 new lows while the Nasdaq Composite recorded 55 new highs and 118 new lows.
(Reporting by Ragini Mathur, Shashwat Chauhan, and Utkarsh Hathi; Editing by Pooja Desai and Devika Syamnath)
