The S&P 500 Index ($SPX) (SPY) closed Wednesday up 0.15%, while the Dow Jones Industrial Average ($DOWI) (DIA) rose by 0.35%. The Nasdaq 100 Index ($IUXX) (QQQ) increased by 0.13%. Furthermore, June E-mini S&P futures (ESM25) were up 0.19%, and June E-mini Nasdaq futures (NQM25) increased by 0.21%.

Initially, stock indexes faltered in the morning after disappointing economic reports raised concerns about a potential economic slowdown. However, they bounced back later in the day. Positive news indicated that the Federal Reserve’s favored inflation measure, the U.S. March core PCE price index, rose at the slowest rate in nine months. Personal spending for March exceeded expectations, and pending home sales recorded their largest increase in 15 months. Late-day short covering also helped push indexes into the green as markets awaited earnings reports from major firms like Microsoft and Meta Platforms.

Economic Indicators and Market Reactions

On Wednesday, concerning economic data initially sparked a downturn in stocks. The U.S. economy contracted at its steepest rate in three years during Q1, contributing to stagflation fears. The Q1 core PCE price index also saw a higher-than-anticipated increase. Additionally, the April ADP employment report revealed fewer job additions than expected, further undercutting market sentiment. Notably, the favorable inflation news caused the 10-year Treasury note yield to drop to a three-week low, enhancing prospects for potential Federal Reserve rate cuts.

Corporate earnings results were mixed. Seagate Technology Holdings surged over 11% after reporting Q1 revenue that exceeded expectations. Trane Technologies also gained more than 8% following strong Q1 adjusted earnings per share. Conversely, Super Micro Computer’s shares dropped over 11% after their preliminary Q3 results fell short of projections, while Norwegian Cruise Line Holdings declined more than 7% after indicating a softening in its 12-month forward bookings.

Global Economic Concerns

Global growth prospects dimmed following weaker-than-expected manufacturing data from China. The April PMI for manufacturing fell 1.5 points to 49.0, marking the steepest contraction in 16 months.

U.S. Mortgage Applications and Employment Data

The U.S. MBA mortgage applications dropped 4.2% for the week ending April 25, with the purchase mortgage sub-index falling 4.4% and refinancing applications down 3.7%. The average 30-year fixed mortgage rate slightly declined to 6.89% from 6.90% the previous week.

Additional economic reports showed the April ADP employment change rose only 62,000, below the anticipated 115,000—the smallest increase in nine months. U.S. GDP for Q1 fell 0.3% (quarter-over-quarter annualized), also below expectations of a 0.2% decline, marking the most significant contraction in three years. In contrast, the Q1 core PCE price index increased 3.5% (quarter-over-quarter), surpassing the forecast of 3.1%.

The U.S. employment cost index rose 0.9% in Q1, aligning with expectations, while the April MNI Chicago PMI fell 3.0 points to 44.6, below the anticipated 45.9.

Personal Spending and Home Sales Data

In March, personal spending rose 0.7% month-over-month, exceeding predictions of 0.6%. Meanwhile, personal income for May increased by 0.5%, also above the estimated 0.4%. The March core PCE price index, which is closely monitored by the Fed, rose 2.6% year-over-year, meeting expectations as it recorded the slowest increase in nine months. Pending home sales rose 6.1% month-over-month in March, outperforming the anticipated 1.0% and representing the biggest increase in 15 months.

Upcoming Economic Indicators

In the days ahead, market focus will shift to tariffs and trade negotiations. On Thursday, the April ISM manufacturing index is expected to decline by 1.0 to 48.0, and earnings results from Amazon and Apple will also be revealed. On Friday, April’s nonfarm payrolls are projected to rise by 130,000, with the unemployment rate expected to remain steady at 4.2%. Additionally, April average hourly earnings are anticipated to increase by 0.3% month-over-month and 3.9% year-over-year.

The likelihood of a 25 basis point rate cut after the May 6-7 FOMC meeting is currently estimated at 8%.

Corporate Earnings Overview

As the Q1 earnings season progresses, market consensus shows a projected year-over-year earnings growth of 6.7% for S&P 500 companies, declining from earlier estimates of 11.1%. So far, more than one-third of S&P 500 companies have reported their quarterly results, with 75% of them exceeding estimates. Expectations for full-year 2025 corporate profits stand at a growth rate of 9.4%, down from the 12.5% forecast made in early January.

International Market Performance

International stock markets ended Wednesday mostly mixed. The Euro Stoxx 50 closed down 0.03%, China’s Shanghai Composite hit a one-week low dropping 0.23%, while Japan’s Nikkei 225 gained 0.57%.

Interest Rates

June 10-year T-notes (ZNM25) closed higher by 3 ticks on Wednesday, with the 10-year T-note yield falling by 0.4 basis points to 4.168%. The yield dropped to a 3-week low of 4.133% during the session, following positive movements in European government bonds and weaker-than-expected U.S. employment data that favored dovish Fed policy. However, yields faced upward pressure later as the Q1 core PCE price index increased more than forecasted, indicating a potentially hawkish stance from the Fed.

European bond yields also declined, with the 10-year German bund yield falling to a one-week low of 2.440%, finishing down 5.3 basis points at 2.444%. The 10-year UK gilt yield similarly dropped to a three-week low of 4.428%, finishing at 4.441%.

For the Eurozone, Q1 GDP increased by 0.4% quarter-over-quarter and 1.2% year-over-year, exceeding forecasts of 0.2% and 1.1% respectively.

German Economic Data Insights

Germany’s March retail sales fell by 0.2% month-over-month, a smaller drop than the anticipated 0.4% decline. Meanwhile, the April CPI (EU harmonized) increased 2.2% year-over-year, stronger than the expected 2.1% increase, although still representing the slowest rise in seven months. Swaps are now pricing in a 100% likelihood of a 25 basis point cut by the European Central Bank during the upcoming June 5 meeting.

Key U.S. Stock Movers

Among U.S. stock movers, Seagate Technology Holdings (STX) led the gainers in the S&P 500, closing up more than 11% following a Q1 revenue report of $2.16 billion, exceeding the consensus estimate of $2.13 billion. Qorvo (QRVO) saw a 14% increase after reporting a Q4 adjusted EPS of $1.42, significantly above the expected 99 cents.

Trane Technologies (TT) rose over 8% after posting Q1 adjusted EPS from continuing operations of $2.45, exceeding the consensus estimate of $2.20. Meanwhile, Western Digital (WDC) climbed more than 7% on positive revenue forecasts for Q4.