U.S. Stocks Decline as Hot Inflation Data and Iran Tensions Weigh on Markets
U.S. stocks moved lower on Tuesday after a stronger-than-expected inflation report increased concerns about interest rates, while worsening tensions between Washington and Tehran added further pressure to investor sentiment.
By 11:00 ET (15:00 GMT), the S&P 500 fell 0.7% to 7,358.19 points, the Nasdaq Composite dropped 1.3% to 25,946.86 points, and the Dow Jones Industrial Average declined 0.6% to 49,432.74 points.
Despite the pullback, major U.S. indexes remain close to record highs following a powerful rally fueled by strong corporate earnings, continued enthusiasm around artificial intelligence stocks and earlier hopes for a diplomatic breakthrough in the Middle East conflict.
U.S. Inflation Hits Highest Level Since 2023
Investor attention was largely focused on the latest U.S. inflation report, as markets searched for signs that rising oil prices linked to the Iran conflict were feeding into broader consumer costs.
According to data from the Bureau of Labor Statistics, headline consumer price inflation rose 0.6% month-over-month and 3.8% year-over-year in April.
The annual inflation figure exceeded expectations of 3.7% and marked the highest reading since May 2023.
Meanwhile, core CPI — which excludes food and energy prices — increased 0.4% monthly and 2.8% annually, also coming in above analyst forecasts.
Energy Prices Continue Driving Inflation Higher
The report confirmed that surging energy prices remain one of the biggest drivers behind elevated inflation.
The energy index rose 3.8% during April and accounted for more than 40% of the monthly increase in headline inflation.
Although the monthly pace slowed compared to March’s sharp 10.9% rise, energy prices were still up 17.9% from a year earlier, marking the strongest increase since September 2022.
Gasoline prices climbed 5.4% in April following a massive 21.2% surge in March. On an annual basis, gasoline prices jumped 28.4%, reaching their highest level since July 2022.
Federal Reserve Rate Cut Hopes Fade
The stronger inflation report reduced optimism that the Federal Reserve could begin cutting interest rates anytime soon.
Oliver Pursche, senior vice president at Wealthspire Advisors, said higher gasoline prices are now impacting multiple categories within the economy and creating a difficult environment for policymakers.
He noted that persistent energy-driven inflation combined with mixed economic data is likely to force the Federal Reserve to keep borrowing costs elevated for longer than markets had anticipated.
Following the CPI release, traders increased expectations for additional Federal Reserve rate hikes later this year, according to the CME FedWatch Tool.
Housing Inflation Adds Another Concern
Analysts also pointed to rising shelter costs as a major contributor to the hotter-than-expected inflation reading.
Kevin Gordon, head of macro research and strategy at Charles Schwab, explained that rent and owners’ equivalent rent data were temporarily distorted due to disruptions in government data collection last year.
As a result, shelter inflation may have appeared artificially stronger in April compared to previous months.
Jerome Powell Era Nears End
The April inflation report arrives during an important transition period for the Federal Reserve.
Current Fed Chair Jerome Powell’s term is set to expire in just a few days, with President Donald Trump expected to replace him with former Federal Reserve governor Kevin Warsh.
Market participants are now evaluating how Warsh’s more hawkish policy stance could influence interest rate decisions moving forward, especially as inflation pressures remain elevated.
U.S.-Iran Tensions Continue Escalating
Geopolitical concerns also weighed heavily on investor sentiment after President Donald Trump warned that the ceasefire between the United States and Iran was on “massive life support.”
Trump strongly rejected Iran’s latest response to a U.S. peace proposal, describing it as “unacceptable” and later calling it “a piece of garbage.”
Speaking on Tuesday, Trump said the United States was under no pressure to rush negotiations and reiterated that Washington would not allow Iran to develop nuclear weapons.
According to CNN, the White House is also considering restarting major military operations as negotiations continue to stall.
Oil Prices Surge Again
The continued uncertainty surrounding the Middle East conflict pushed oil prices sharply higher once again.
Brent crude futures rose 3.7% to $108.04 per barrel, while U.S. West Texas Intermediate crude gained 4% to $101.94 per barrel.
Oil prices have remained significantly above pre-war levels throughout the conflict, increasing fears that elevated energy costs could further slow global economic growth and prolong inflationary pressures.
eBay Rejects GameStop Takeover Offer
Among notable individual stock moves, GameStop shares fell 1% after eBay rejected the company’s $56 billion takeover proposal, calling the offer “neither credible nor attractive.”
Shares of eBay moved slightly higher following the announcement.
Under Armour and Hims & Hers Drop
Elsewhere, Under Armour stock plunged more than 18% after the sportswear company disappointed investors with weaker quarterly results and guidance.
Hims & Hers Health also dropped around 11% after reporting lower-than-expected first-quarter revenue and an unexpected loss tied to changes in its weight-loss product business.
