U.S. Markets retreat from record highs amid inflation concerns

US stocks mainly moved higher early in Tuesday’s session but gave back ground throughout the trading day. The major averages pulled back well off their session highs before eventually closing mixed. Oil service stocks slumped amid declining crude oil prices, causing the Philadelphia Oil Service Index to drop 3.1%. Banking, pharmaceutical and biotechnology stocks also showed considerable weakness, contributing to the broader market pullback. The S&P 500 fell 0.4%, pulling back from recent records, as June CPI data showed inflation rising to 2.7% year-over-year, in line with expectations but higher than the 2.5% reported in May. The Nasdaq gained 0.2% to close at a new all-time high, driven by a 4% surge in Nvidia shares after indicating it will “soon” resume H20 AI chip sales to China. The tech sector outperformed, with AI and semiconductor stocks broadly rallying, offsetting weakness in financials and other sectors. The inflation increase, partly attributed to Trump’s tariffs, dampened hopes for imminent Fed rate cuts and pressured equity valuations.

Major financial firms, such as State Street and BlackRock, declined following mixed earnings reports, with concerns over falling net interest income and higher expenses. The weakness in bank stocks contributed significantly to the S&P 500’s decline, counterbalancing the gains in the tech sector. June’s CPI report revealed the most significant monthly price increase since January, with tariffs now being passed through to consumer goods, such as appliances and clothing. While the overall inflation rise was expected, the data raised concerns about the persistence of inflation and its impact on Fed policy. Trading in US markets on Wednesday may be influenced by the reaction to producer price and industrial production reports, as well as the latest earnings news. Japanese government bond yields are surging, and the yen slumped to a three-month low on Tuesday.

Nifty broke a four-session losing streak by rising 113 points or 0.45%, to close at 25195 yesterday. Nifty found support near its 50-day SMA and bounced back, which has raised hopes for the bulls to regain momentum. Considering the evident strength across the broader markets, this recovery is likely to be sustained. The long position should be protected with a stop-loss of 25000 in Nifty. On the higher side, 25331 could offer short-term resistance to Nifty.

Indian Markets will open lower in line with subdued cues from the US market. Following a softer opening, markets are expected to be driven by news flows on the progress of the US-India trade deal and the performance of the earnings season.

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Source: HDFC Securities Prime Research