Dow Jones slips while S&P 500 hits record high on AI chip rally

The S&P 500 and Nasdaq Composite closed at fresh record highs on Wednesday as investors continued piling into artificial intelligence-related technology shares, brushing aside another hotter-than-expected inflation report and growing expectations that the Federal Reserve may keep interest rates elevated for longer.

The broad-based S&P 500 rose 0.58% to close at 7,444.25, while the Nasdaq Composite gained 1.2% to 26,402.34.

Both indexes reached new intraday and closing highs during the session.

In contrast, the Dow Jones Industrial Average fell 67.36 points, or 0.14%, to end at 49,693.20.

Technology and semiconductor stocks led the rally despite inflation concerns weighing on much of the broader market.

Nvidia rose more than 2%, while Micron Technology gained over 4%.

The VanEck Semiconductor ETF advanced about 2%.

Meanwhile, roughly two-thirds of S&P 500 components declined during the session, according to FactSet data.

Shares tied more closely to the economic cycle, including Home Depot and JPMorgan Chase, underperformed as investors reacted to higher inflation and rising energy costs linked to the ongoing Iran conflict.

AI-driven chip rally powers markets higher

Investor enthusiasm surrounding artificial intelligence continued to dominate trading activity, particularly within semiconductor stocks tied to the AI infrastructure buildout.

The sector also received support after Nvidia CEO Jensen Huang joined President Donald Trump’s trip to China for meetings with Chinese President Xi Jinping.

Investors viewed Huang’s participation as a possible sign of improving prospects for Nvidia’s AI chip sales in China.

Reuters reported that six of the “Magnificent Seven” megacap technology stocks posted gains during the session.

Inflation data dampens hopes for rate cuts

The market rally came despite fresh inflation data that reinforced concerns about persistent price pressures across the US economy.

The Labor Department reported that the Producer Price Index rose 1.4% in April, marking the largest monthly increase since March 2022 and significantly exceeding economists’ expectations for a 0.5% increase.

On an annual basis, wholesale inflation climbed 6%, the strongest increase since December 2022.

Much of the increase was attributed to rising energy prices and crude supply disruptions linked to tensions surrounding the Strait of Hormuz during the Iran conflict.

Underlying inflation measures also remained elevated, suggesting higher costs are spreading across broader segments of the economy.

The data followed another stronger-than-expected consumer inflation report released earlier in the week, further reducing expectations for near-term Federal Reserve rate cuts.

Boston Fed President Susan Collins said Wednesday that an interest rate increase could still be possible if inflation pressures fail to ease.

Trump-China summit draws market attention

Markets also closely monitored developments from Trump’s visit to Beijing, where the US president is holding a two-day summit with Xi Jinping.

Trump traveled with a delegation that included Jensen Huang and Tesla CEO Elon Musk as the administration seeks progress on trade, technology access, and business deals.

Topics on the agenda include maintaining the fragile trade truce between the two countries and encouraging China to expand access for US companies.

Elsewhere in the market, Morgan Stanley raised its year-end target for the S&P 500 to 8,000 from 7,800, citing strong corporate earnings and continued momentum in US equities.