US Stocks Retreat as Core CPI Falls Below Expectations

Core CPI below expectations has investors cautious about the Fed's next move. Despite a brief boost from Nvidia's China chip sales, stocks retreated. The lack of a rate cut has investors on edge. The market is waiting for further signals from the Fed on its policy stance.

The latest Consumer Price Index (CPI) report, released on July 2, 2025, showed core CPI falling below expectations, raising questions about the Federal Reserve's (Fed) next move. Despite a brief boost from Nvidia's announcement of approved sales of H20 chips to China, stocks retreated, leaving investors on edge and awaiting further signals from the Fed.

The core CPI, a key measure of inflation, fell to 2.6% in May 2025, down from 3.1% in early 2024. This figure, which excludes volatile food and energy prices, is closer to the Fed's 2% target but still above expectations. The Fed's June 2025 meeting minutes indicated internal debates over whether to maintain patience or urgency in rate cuts, with most participants agreeing that some cuts could come by late 2025 or 2026, depending on inflation trends [1].

Nvidia's announcement that it had won approval from the Trump administration to sell its H20 AI chips to China provided a brief respite for investors. However, the market's immediate reaction was cautious, with stocks retreating due to the uncertainty surrounding the Fed's policy stance. The approval of Nvidia's H20 chip sales to China signals a shift in the U.S. administration's approach to exporting advanced technology, but it also underscores the ongoing trade rivalry between the U.S. and China [2].

Investors are now closely watching for further guidance from the Fed. The market is divided on the timing of potential rate cuts, with the 2-year Treasury yield falling to ~4.0% while the 10-year yield remains high at ~3.5%. Short-term Treasuries and inflation-protected securities (TIPS) are being favored as safer bets, while long-term bonds carry significant interest rate risk [1].

The core CPI report and Nvidia's announcement have highlighted the delicate balancing act the Fed faces. While inflation has shown signs of moderating, the impact of tariffs and lingering shelter costs remains uncertain. Investors should remain vigilant and prepared for a gradual Fed pivot, balancing growth opportunities with inflation resilience.

References:
[1] https://www.ainvest.com/news/anticipating-fed-rate-cuts-navigating-equity-bond-markets-shifting-inflation-landscape-2507/
[2] https://www.dailycamera.com/2025/07/15/nvidia-chips-china/