Major Indexes Pull Back in Friday Mid-Day Trading
U.S. markets are trading lower Friday as investors navigate renewed trade tensions and digest disappointing earnings from major retailers. As of mid-day, the major indexes have given back some of their recent gains, with the S&P 500 down 0.1%, the Nasdaq Composite declining 0.1%, and the Dow Jones Industrial Average slipping 0.04%.
Today’s pullback comes after a strong month for equities, with the S&P 500 up more than 6% in May, the Nasdaq surging 10%, and the Dow gaining approximately 4%. Despite today’s retreat, the major indexes are still on track to close the week with solid gains, with the S&P 500 up about 2% for the week.
Trade Tensions Resurface as Legal Battle Continues
Market volatility has increased following President Donald Trump’s claim that China breached its preliminary trade deal, raising concerns over a potential prolonged trade conflict.
The U.S. Court of International Trade ruled on Wednesday that Trump had exceeded his authority by imposing sweeping tariffs under the International Emergency Economic Powers Act. However, a federal appeals court temporarily reinstated the levies on Thursday, allowing tariff collection to continue while the legal process unfolds.
“In general, markets don’t like uncertainty, because it makes forecasting more difficult,” said Larry Tentarelli, founder of the Blue Chip Daily Trend Report. “We expect the tariff news cycle to be an extended process, which can lead to higher short-term volatility.”
Retailers Struggle as Gap Warns of Tariff Impact
The Gap, Inc. (GAP) shares plunged 13.7% in mid-day trading after the retailer warned that tariffs could result in a gross estimated incremental cost of approximately $250 million to $300 million. This warning came alongside the company’s first-quarter financial results.
Other retailers facing pressure include The Cooper Companies, Inc. (COO), which declined 10% following its second-quarter results.
Tech Sector Mixed as Nvidia Momentum Continues
The technology sector is showing mixed performance today, with Nvidia Corporation (NVDA) slipping 1.65% despite its impressive earnings report released earlier this week. The semiconductor giant announced a 69% year-over-year revenue increase, reaching $44.1 billion, surpassing Wall Street expectations.
Nvidia’s data center business saw revenues of $39.1 billion, a 73% increase from the previous year, underscoring strong demand for its AI chips. Despite today’s pullback, the stock has been a major contributor to the tech sector’s strong performance in May.
Meanwhile, Elastic N.V. (ESTC) shares dropped 9.7% despite beating earnings expectations. The company reported adjusted earnings of 47 cents per share, above market estimates of 37 cents per share, with sales of $388.43 million versus expectations of $380.36 million.
Economic Data and Upcoming Events
Investors are digesting the latest Personal Consumption Expenditures (PCE) index data, the Federal Reserve’s preferred inflation gauge, which aligned with expectations.
The Department of Labor reported that initial jobless claims increased by 14,000 to 240,000 for the week ended May 24, higher than the previous week’s revised level of 226,000. Continuing claims rose to 1,919,000, the highest level since November 2021.
Additionally, the second estimate of first-quarter GDP showed a decrease at an annual rate of 0.2%, slightly better than the previously reported 0.3% decline.
Looking Ahead: Market Outlook
As we approach the end of May, market analysts remain cautiously optimistic about the summer outlook despite current trade tensions and inflation concerns.
“I think as we head into summer that momentum can continue, [but] then that’s where the hard data that may catch up to the weaker, soft data, could come into play,” Ned Davis Research chief U.S. strategist Ed Clissold told CNBC. “I think as we move through the second quarter into the third quarter, there’s still some good momentum in the market.”
Investors will be closely monitoring developments in the ongoing trade dispute and upcoming economic data releases for signs of how the economy is responding to current policy uncertainties.