Stocks See Support as US Core CPI Eases

The S&P 500, Dow Jones, and Nasdaq 100 are trading higher, reaching multi-month highs, driven by falling bond yields and a weaker-than-expected US May core CPI report, easing inflation concerns as the 10-year T-note yield declines. Chip stocks are supporting the market, while Lockheed Martin is down sharply after the US Air Force cut its F-35 aircraft request, and steelmakers declined on news of potential tariff concessions between the US and Mexico.

Analysis

Major US stock indexes, including the S&P 500 and Nasdaq 100, reached 3-1/2 month highs, while the Dow Jones Industrials posted a 3-month high, buoyed by a weaker-than-expected US May core CPI report and falling bond yields. The May core CPI rose +2.8% year-over-year, below the +2.9% expectation, easing inflation concerns and contributing to a 4 basis point drop in the 10-year T-note yield to 4.43%. This positive inflation data overshadowed initial caution stemming from a lack of concrete details in the US-China trade talks, where a framework for reviving sensitive goods flow was established but awaits presidential approvals. US MBA mortgage applications showed a notable increase of +12.5% for the week ended June 6, with the purchase sub-index up +10.3%, despite a marginal 1 basis point rise in the average 30-year fixed mortgage rate to 6.93%. Sector-wise, chip stocks such as Micron Technology (MU) and Broadcom (AVGO) registered gains of over 1%, providing broad market support. Conversely, defense contractor Lockheed Martin (LMT) plummeted over -6% following the US Air Force's decision to halve its F-35 aircraft procurement request, dragging down peers like Northrop Grumman (NOC). Steelmakers, including Cleveland-Cliffs (CLF) and Nucor (NUE), also experienced significant declines (over -7% and -5% respectively) amid speculation of tariff removals on some steel imports from Mexico. Other notable movers included Talen Energy (TLN), up over +3% on an expanded power pact with Amazon, and Starbucks (SBUX), up over +2% on potential China business stake sale interest. However, American Superconductor Corp (AMSC) fell sharply by over -17% after a discounted stock offering, Chewy (CHWY) dropped over -11% due to a Q1 gross margin miss of 29.6% versus a 29.9% consensus, and Gitlab (GTLB) declined over -10% on a Q2 revenue forecast of $226 million-$227 million, below the $227.1 million consensus. Markets anticipate further clarity from upcoming May PPI data, expected to increase to +2.6% y/y, and the preliminary June University of Michigan consumer sentiment index, while currently pricing in a 0% chance of a rate cut at the June 17-18 FOMC meeting.

Key Decisions for Investors

• The easing inflation print (May core CPI +2.8% y/y) and consequent fall in bond yields provide a supportive backdrop for equities, but investors should monitor upcoming PPI data and US-China trade developments for confirmation of a sustained positive trend.
• Sector rotation opportunities and risks are evident; consider relative strength in semiconductor stocks (MU, AVGO) while exercising caution with defense contractors like Lockheed Martin (LMT) facing order reductions and steel producers (CLF, NUE) potentially impacted by tariff adjustments.
• Focus on company-specific catalysts, such as Talen Energy's (TLN) expanded Amazon agreement or Starbucks' (SBUX) potential strategic moves in China, while being wary of stocks like American Superconductor (AMSC), Chewy (CHWY), and Gitlab (GTLB) that have reported negative fundamental news or dilutive corporate actions.