- The three major U.S. stock indices have retreated from their historical highs to varying degrees, with the Nasdaq Composite Index falling 1.37% to 25,913.48 points. This reflects that unexpected inflation data and rising geopolitical tensions in the Middle East are prompting investors to take profits at the end of the earnings season.
- The Philadelphia Semiconductor Index recorded a significant decline of 4.8%, indicating that the technology sector is under valuation pressure after substantial expansion in the previous period. Meanwhile, the healthcare sector rose against the trend due to its defensive nature, with Humana closing up 5.4% after analysts raised its target price.
- The pricing in the interest rate derivatives market has reversed, with the CME FedWatch tool showing that the market currently expects a 31.5% probability of a 25 basis point rate hike by the Federal Reserve in December, and expectations for a rate cut within 2026 have been largely cleared.
Reassessment of Core Inflation and Adjustment of Monetary Policy Path
The unexpected rise in the U.S. Consumer Price Index for April is forcing fixed income and equity markets to recalibrate macro pricing models. Against the backdrop of disruptions in the oil supply chain, the risk of inflation stickiness spreading from goods to core services is increasing. This macro reality has directly cut off market bets on the Federal Reserve adopting an easing policy in the near term. With the U.S. Senate formally confirming Kevin Walsh's nomination as the new chairman of the Federal Reserve, the market is closely watching his policy framework. Currently, the interest rate swap market has not only eliminated expectations of a rate cut within the year but has also raised the probability of a rate hike before the end of the year to 31.5%. If subsequent wage data and price indicators continue to resonate, further increases in risk-free rates will exert sustained pressure on high-valuation growth stocks.
Geopolitical Tensions and Their Impact on Commodities and Supply Chains
The 11-week-long tensions in the Middle East show no signs of easing, particularly with the continued blockade of the Strait of Hormuz, causing substantial disruptions to global energy transportation. U.S. officials' statements about the imminent breakdown of the ceasefire agreement have further heightened the geopolitical risk premium in the oil market. This imported inflationary pressure is a direct cause of the current complex macro environment. Against this backdrop, U.S. President Trump plans to visit Beijing for high-level talks, covering topics such as tariffs and rare earth metal trade. If the U.S. and China can reach some consensus on supply chain stability and geopolitical mediation, it will help alleviate global market anxiety over structural shortages of commodities, thereby providing a buffer for a soft landing of the macroeconomy.
Profit-Taking in Tech Stocks and Rotation to Defensive Sectors
At the micro-enterprise level, the end of the first-quarter earnings season is accompanied by a noticeable cross-sector rotation of funds. Although the Philadelphia Semiconductor Index, driven by the AI boom, still has a year-to-date increase of 62.4%, it has experienced a significant 4.8% pullback amid macro headwinds, indicating that institutional funds are prioritizing reducing risk exposure to high-beta assets in the face of interest rate uncertainty. Meanwhile, funds are shifting to sectors with cash flow support and performance certainty. Healthcare stocks have become a safe haven, with Humana rising 5.4% after Bernstein raised its target price by 36%. Additionally, Zebra Technologies, benefiting from the automation of manufacturing workflows, surged 14.4%, showing that equipment suppliers enhancing production efficiency are gaining market premiums in an environment of high labor costs.
