Today was a good day for stock investors as the major indices—the Nasdaq 100 (QQQ), the S&P 500 (SPY), and the Dow Jones Industrial Average (DIA)—closed out a wild trading week on a positive note. Interestingly, the trading session was led by the materials (XLB) and energy (XLE) sectors. In addition, across all three ETFs, trading volume was much closer to the average after a week of extremely higher than usual trading activity.
Earlier today, U.S. inflation data from March showed a surprise drop in wholesale prices and gave the Federal Reserve some relief even as tariff tensions rise. The Producer Price Index (PPI), which reflects wholesale inflation, fell 0.4% last month – the first decline since October 2023. Economists had expected a 0.2% increase. Core PPI, which excludes food and energy, also dipped 0.1%. This slowdown in inflation came before President Trump introduced a 10% tariff on all imports in early April. While energy prices, especially gasoline, drove much of the PPI drop, inflation is still above the Fed’s 2% target.
Despite the inflation surprise, economic uncertainty remains high. Minneapolis Fed President Neel Kashkari noted that rising Treasury yields and a weakening U.S. dollar point to shifting investor sentiment. He suggested that investors may be losing confidence in the U.S. as a safe investment destination, likely due to Trump’s expanding trade war. While the dollar would typically rise during global stress, it has dropped by more than 3% recently, which Kashkari said supports the idea that global investors are reassessing U.S. financial assets.
Meanwhile, consumer confidence has taken a hit. Indeed, the University of Michigan’s Consumer Sentiment Index fell sharply to 50.8 in April, down from 57.0 in March – its fourth monthly drop in a row. Worries about the trade war with China are leading to expectations of higher inflation and weaker job prospects. Inflation expectations for the year ahead jumped to 6.7%, while five-year expectations rose to 4.4%. The share of consumers expecting higher unemployment is now at its highest level since 2009. According to survey director Joanne Hsu, confidence fell across all age groups, income levels, and political affiliations.