Stocks Finish Lower Despite Cooler Inflation, Uncertainty Over China Trade Deal Weighs on Sentiment

U.S. stocks closed slightly lower Wednesday as early optimism over easing inflation gave way to investor caution amid murky details of a proposed U.S.-China trade agreement and ongoing political tensions at home.

The Dow Jones Industrial Average edged down 1.10 points to 42,866.58, effectively flat on the day. The S&P 500 lost 16.51 points, or 0.27%, to close at 6,022.30, while the Nasdaq Composite fell 99.11 points, or 0.50%, to 19,615.99. The small-cap Russell 2000 declined 0.41%.

Markets initially climbed in early trading after the Labor Department reported that the Consumer Price Index (CPI) rose just 0.1% in May from the previous month, and 2.4% from a year earlier—both below economist expectations. Core CPI, which excludes volatile food and energy prices, also increased 0.1% month-over-month and held at 2.8% year-over-year. The data offered a reprieve from inflation worries and buoyed expectations for potential rate cuts later this year.

The CPI release was “a critical win for markets fearing a resurgence in inflation just as growth concerns start to mount,” according to the report.

S&P futures spiked over 20 points following the data release before the opening bell, while the yield on the 10-year Treasury fell below 4.45%, reflecting renewed hopes for a more dovish stance from the Federal Reserve at next week’s policy meeting. Options markets had priced in a 1.5% implied move in the S&P 500 ahead of the report, reflecting heightened volatility expectations.

However, investor enthusiasm waned later in the session as attention shifted to global trade developments. President Donald Trump announced on his social media platform that a long-anticipated trade agreement with China was “done.” But Commerce Secretary Howard Lutnick quickly clarified that “no written framework exists,” and that the nations had only reached a handshake understanding following recent talks in London.

The discussions were an effort to revive the Geneva trade truce announced in May. According to Lutnick, both sides agreed to accelerate Chinese export approvals for rare earth minerals and magnets essential to U.S. industries. Trump said China would provide these materials “up front,” calling the deal a boon for the auto, chip, and defense sectors.

Still, Lutnick warned that “there is no text, no implementation timeline, and no confirmed scope of concessions.” He added, “We used plane parts and ethane as bargaining tools, but we are not giving China our best chips”.

Analysts expressed caution over the announcement. Dan Ives of Wedbush said the rare earth provisions were a “positive step for the tech sector” but noted “this is only the beginning,” adding that “chip deals are likely next”. He labeled the framework a “relief for tech investors,” but emphasized that unresolved issues like tariff burdens and export licensing remain hurdles.

Investor caution was further compounded by domestic unrest. Los Angeles Mayor Karen Bass extended a citywide curfew following ongoing protests related to federal immigration raids and the deployment of more than 2,700 federal troops. California Governor Gavin Newsom’s attempt to block the deployments was denied by a U.S. District Court, adding to the political tensions that rattled some market participants