U.S. stocks closed slightly lower on Wednesday, breaking a three-day winning streak, as fading enthusiasm over a U.S.-China trade deal outweighed relief from cooling inflation, which had boosted hopes for interest rate cuts by the Federal Reserve.
By 4:00 p.m. ET, the Dow Jones Industrial Average slipped just 1 point, while the S&P 500 fell 0.2%, and the NASDAQ Composite dropped 0.5%.
Trade Deal Hype Cools Despite Trump’s Announcement
President Trump confirmed that a trade agreement with China was finalized “in principle” following two days of intensive negotiations in London. On his Truth Social platform, Trump declared the deal “done,” pending final approval from both himself and Chinese President Xi Jinping.
“Our deal with China is done, subject to final approval with President Xi and me,” Trump posted, highlighting positive relations between the two leaders.
Key aspects of the agreement reportedly include U.S. access to Chinese rare earth minerals and magnets—resources American negotiators had prioritized. In return, Chinese students will continue to have access to U.S. universities.
Trump also stated that tariffs on Chinese goods will reach 55%, while Chinese tariffs on U.S. products will be set at 10%. However, the lack of detailed terms has left investors wary, especially after previous deals like the Geneva Agreement failed to hold long-term.
Rising Geopolitical Tensions
On the geopolitical front, the U.S. is preparing to partially evacuate its embassy in Iraq and authorize military families to leave several Middle East locations due to unspecified security concerns, according to Reuters.
This development follows renewed U.S. threats to strike Iran if nuclear negotiations collapse, adding further uncertainty to the global political landscape.
Inflation Eases in May
Inflation showed signs of easing in May, even amid ongoing concerns about the inflationary effects of tariffs. The Consumer Price Index (CPI) rose 2.4% year-over-year, slightly below expectations of 2.5%, and up modestly from April’s 2.3%.
Month-over-month, prices increased just 0.1%, slower than the anticipated 0.2%. Core CPI, which excludes food and energy, remained steady at 2.8% annually and slowed to 0.1% monthly—both readings came in below forecasts.
The cooler inflation data led traders to increase bets on a Fed rate cut in September, with futures pricing in nearly a 70% chance—up from 57% earlier in the week. Still, some analysts warned that inflation could rebound due to recent tariff hikes.
“Despite the subdued figures, we expect year-over-year core inflation to remain elevated through year-end, possibly rising as recent tariff effects filter through,” analysts at Macquarie noted.
Corporate Earnings in Focus
On the corporate earnings front:
- Chewy (NYSE: CHWY) shares dropped after the online pet retailer reported better-than-expected first-quarter sales but missed on profit.
- Victoria’s Secret (NYSE: VSCO) saw its stock rise as the company reaffirmed its full-year sales outlook and beat earnings expectations, despite lowering its 2025 adjusted operating income forecast.
The spotlight, however, remains on Oracle (NYSE: ORCL), which is set to report earnings after the market close. CEO Safra Catz has previously laid out strong growth expectations, driven by rising demand for AI-powered cloud services—a central part of Oracle’s strategy.
Investors will also be watching Oracle’s cash flow closely. Analysts at Vital Knowledge expect around $3 billion in free cash flow and $3.8 billion in capital expenditures, amid concerns about the company’s aggressive investment plans.
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