Dow falls 230 points as hot inflation data rattles Wall Street

US stocks opened subdued on Wednesday after another stronger-than-expected inflation report reinforced expectations that the Federal Reserve may keep interest rates elevated throughout the year, while a rebound in semiconductor stocks helped support technology-heavy indexes.

The Dow Jones Industrial Average fell 230 points, or 0.46%, while the S&P 500 slipped 0.04%. Nasdaq Composite outperformed, gaining 0.3% as chipmakers recovered from the previous session’s selloff.

The latest market moves followed fresh producer inflation data showing wholesale prices accelerated sharply in April amid rising energy costs tied to the ongoing Iran conflict.

The producer price index rose 1.4% during the month, marking the largest monthly increase since March 2022 and significantly exceeding the economists' expectations for a 0.5% gain. 

On an annual basis, producer prices climbed 6%, the highest level since December 2022 and above consensus estimates of 4.9%.

The data came a day after consumer inflation also surprised to the upside, pushing the annual consumer price index to 3.8%, its highest reading since May 2023.

Inflation pressures reshape Fed expectations

The back-to-back inflation reports further complicated the outlook for monetary policy and strengthened expectations that the Federal Reserve will maintain restrictive policy for longer.

Treasury yields climbed to 10-month highs as traders increased bets on additional policy tightening.

According to LSEG data, markets were pricing in roughly 11 basis points of tightening by December following the producer price report, compared with 9.3 basis points before the data release.

The inflation data also arrived amid expectations for a potentially more hawkish Federal Reserve leadership transition after the Senate confirmed Kevin Warsh to the Fed Board on Tuesday.

The Senate could move to approve Warsh as Fed chair as soon as Wednesday, while current Chair Jerome Powell’s term expires Friday.

Chip stocks rebound after sharp selloff

Technology stocks stabilized after heavy losses in the previous session, with semiconductor shares leading the recovery.

Micron Technology jumped 4.5% in trading, while Western Digital, Seagate, and SanDisk posted slight gains.

Nvidia shares climbed more than 2.4%.

The VanEck Semiconductor ETF also rose 1.15%.

The rebound followed a steep pullback Tuesday, when investors rotated out of high-flying AI-linked chipmakers amid rising inflation concerns and surging oil prices.

Investor sentiment toward semiconductor stocks also received support after Nvidia Chief Executive Officer Jensen Huang joined President Donald Trump during his visit to China for meetings with Chinese President Xi Jinping.

Iran conflict and China summit remain in focus

Markets also continued monitoring developments tied to the Iran conflict, which has kept oil prices elevated and intensified concerns about inflation.

Oil prices eased slightly on Wednesday after rising for three consecutive sessions as investors assessed prospects for any progress in ceasefire negotiations.

Wall Street has grown increasingly concerned that prolonged disruptions tied to the Middle East conflict could continue lifting fuel and transportation costs, further complicating the Fed’s policy path.

Meanwhile, Trump arrived in Beijing for a two-day summit with Xi Jinping, accompanied by a business delegation that included Huang and Elon Musk.

Trump previously said trade discussions would dominate the summit and downplayed expectations that Iran would become a central topic of the talks.

Investors are also awaiting upcoming US retail sales data later this week for signs that higher gasoline and energy prices are beginning to pressure broader consumer spending.