S&P500: Stocks Slip as PCE Misses Forecast and China Trade Fears Resurface

Stocks Open Lower Despite Cooling PCE Inflation as Trade Tensions Resurface

U.S. stocks opened slightly lower Friday as investors weighed better-than-expected inflation data against renewed trade concerns. The Dow Jones Industrial Average dipped 0.3%, with the S&P 500 and Nasdaq Composite also down 0.3% shortly after the opening bell. President Trump’s early-morning claim that China violated its trade agreement with the U.S. rattled sentiment, adding geopolitical risk just as fresh inflation data offered a more favorable read for the Federal Reserve.

April’s Personal Consumption Expenditures (PCE) index, a key inflation measure for the Fed, rose just 2.1% year-over-year—below the 2.2% forecast. Core PCE increased 2.5%, in line with expectations. Both headline and core inflation advanced only 0.1% month-over-month, reinforcing the market’s view that pricing pressures are cooling and strengthening the Fed’s case for keeping rates unchanged in the near term

Is the Fed’s Hand Strengthened by These Inflation Numbers?

Traders reacted positively to the PCE data, which showed clear signs of disinflation. With the Fed targeting 2% inflation, the cooling in both headline and core figures bolsters the argument that existing rate levels are restraining price growth. The probability of a rate hike in the coming months has now declined, helping stabilize rate-sensitive sectors such as tech and consumer discretionary.

Still, geopolitical risks are complicating the macro outlook. Treasury Secretary Bessent admitted that U.S.-China talks are “a bit stalled,” while tariff measures face ongoing legal challenges. The Trump administration is reportedly considering invoking the Trade Act of 1974 to justify new tariffs—an added layer of uncertainty for global markets.

How Are Consumers Holding Up?

April’s personal income rose 0.8%, with disposable income also up 0.8%. However, consumer spending climbed just 0.2%, a notable slowdown. Real personal consumption edged up a modest 0.1%, reflecting weaker purchasing power.

Consumers appear cautious: the savings rate ticked up to 4.9%, and goods spending contracted by $8 billion. A $55.8 billion gain in services spending suggests that activity is shifting toward less price-sensitive categories.

Which Stocks and Sectors Are Making Moves?

Tech was mixed. UiPath jumped 12% on strong results and a guidance lift. Zscaler added 6% following a beat, while Elastic NV dropped 10% on disappointing projections. PagerDuty fell 5% after underwhelming guidance.

Retail earnings varied. Ulta Beauty rose 9% after lifting its profit forecast. American Eagle and Gap sank 7% and 13%, respectively, after weak guidance overshadowed otherwise mixed results. Marvell Technology lost 4% despite meeting estimates, while NetApp slipped 5% following cautious forecasts.

What Should Traders Watch as June Begins?

The PCE data supports a bullish bond outlook and reduces pressure on the Fed to act. Equities may benefit, especially rate-sensitive names, but weak spending data and renewed trade tensions with China limit broader upside.

Next week’s labor market data and ISM manufacturing reports will be key for confirming whether disinflation continues without stalling growth. Trade headlines remain a wildcard, and any escalation could quickly shift sentiment.

More Information in our Economic Calendar.