Stock market today: Dow, S&P 500, Nasdaq slip as US-China tensions heat up while PCE inflation cools

US stocks finished May strong despite late-month volatility driven by trade tensions and tariff uncertainty, with the S&P 500 gaining over 6% for its best May since 1990. Tech stocks led the surge, boosting the Nasdaq nearly 10% for the month, while the Dow added 4%. Renewed concerns arose from potential expanded tech restrictions on China and stalled trade talks, compounded by legal challenges to Trump-era tariffs; however, cooling inflation data, as indicated by the PCE index, provided some offset. In after-hours trading, Ulta Beauty surged on strong earnings, while The Gap declined due to tariff concerns.

Analysis

US equity markets demonstrated significant strength in May, with the S&P 500 achieving its best monthly performance since November 2023 and its strongest May since 1990, rising over 6%. This rally was largely propelled by the technology sector, which drove the Nasdaq to a nearly 10% gain for the month, while the Dow Jones Industrial Average added a more modest 4%. Despite these robust monthly figures, the period concluded with increased volatility, evident in the Nasdaq's 0.3% dip on the final trading day after recovering from an earlier 1.6% loss. This late-month turbulence stemmed primarily from renewed US-China trade tensions, including reports of potential expansions to tech restrictions targeting subsidiaries of sanctioned Chinese firms and stalled trade negotiations, as highlighted by the Treasury Secretary. Further uncertainty was introduced by legal challenges to existing global tariffs. Counterbalancing these geopolitical concerns, April's Personal Consumption Expenditures (PCE) index indicated a continued cooling of inflation, with the core PCE aligning with market expectations. Specific company news saw Ulta Beauty (ULTA) surge 8.3% in after-hours trading on strong Q1 earnings (net sales +4.5% to $2.8 billion, EPS $6.70) and positive Q2 guidance. Conversely, The Gap (GAP) shares fell 14.8% post-earnings, despite exceeding revenue and EPS expectations ($3.46 billion revenue, $0.51 EPS), due to investor apprehension over a potential $300 million impact from tariffs. Newsmax (NMAX) continued its sharp decline, dropping 10.4% after-hours and over 75% since its March IPO, attributed to an overambitious valuation, weak financial returns, and ongoing legal issues.

Key Decisions for Investors

• Investors should acknowledge the strong monthly market gains, particularly in technology, but remain cautious due to heightened volatility driven by ongoing US-China trade tensions and tariff uncertainties, which could swiftly alter market sentiment.
• Careful scrutiny of companies with significant exposure to US-China trade or supply chains, such as The Gap, is warranted, as tariff impacts can overshadow strong operational performance.
• The contrasting after-hours movements of Ulta Beauty and Newsmax underscore the importance of individual company fundamentals; Ulta's robust earnings present a bullish case for specific consumer discretionary names, while Newsmax's sustained decline highlights the risks associated with challenged business models and legal overhangs.
• While cooling inflation data, like the recent PCE report, offers a positive macroeconomic signal, its sustained trend and the Federal Reserve's response should be closely monitored in conjunction with evolving trade policy narratives.