Stocks dropped on Wednesday despite news of progress on a trade deal with China and inflation data that remained largely in check despite President Trump’s tariffs.
The Dow Jones Industrial Average lost 1 point, while the S&P 500 and Nasdaq dipped 0.3% and 0.5%, respectively.
Trump announced that a deal has been reached with China after days of intense trade talks in London.
“Full magnets, and any necessary rare earths, will be supplied, up front, by China. Likewise, we will provide to China what was agreed to, including Chinese students using our colleges and universities (which has always been good with me!),” the president wrote in full capitalization.
“We are getting a total of 55% tariffs, China is getting 10%. The relationship is excellent! Thank you for your attention to this matter!”
The agreement aims to reinstate a pact reached with the nation in Geneva last month, which lowered the US tariffs on Chinese imports to 30% from 145% while China cut its tariffs on US goods to 10% from 125%.
That temporary deal was meant to last until August 10 to give the two nations time to negotiate a more comprehensive trade agreement.
The 55% rate announced Wednesday presumably combines the 30% rate from the temporary deal with a 25% tax on steel and aluminum imports from all countries.
Commerce Secretary Howard Lutnick said Wednesday that tariff rates on China will not change again, even as a final trade deal awaits approval from Trump and Chinese President Xi Jinping.
News of the deal quelled some investor fears as the Dow crept up, while others argued the pact was underwhelming.
Wayne Winegarden, senior economics fellow at right-leaning research tank Pacific Research Institute, cautioned on Wednesday that a 55% total tax on Chinese goods will still hammer economic growth at home.
While resumed rare earth exports from China are a step in the right direction, there’s no guarantee that trade relationship will remain in place, he added.
Inflation data released Wednesday morning, meanwhile, came in fairly tame as prices continued to escape the impact of Trump’s sweeping tariffs.
The Consumer Price Index rose 2.4% in May from a year earlier, a slight increase from 2.3% the month before but rising in line with expectations, according to the Bureau of Labor Statistics.
Core inflation, which excludes volatile food and energy prices, came in at 2.8% – below expectations of a 2.9% rise.
Drops in car and apparel prices, which are heavily influenced by trade, helped drive the better-than-expected figures. The energy index also fell as gasoline prices declined.
US stocks rose as analysts said the report could open the door for interest rate cuts in September.
Trump has been pressuring Fed Chair Jerome Powell to slash rates, calling on Wednesday for them to be lowered “ONE FULL POINT.”
However, the data showed shelter rose 0.3% from the month before – or 3.9% versus a year ago. It was the main driver of inflation in May, according to the government.
And experts warned that companies may have been waiting to raise prices until more permanent rates were announced – meaning economic data over the summer could start to reveal more price hikes.
