Tech stocks propel S&P 500, Nasdaq to record highs despite inflation surge

The stock market closed Wednesday at uncharted territory, with the S&P 500 and Nasdaq both setting fresh records. The story of the day was narrow and powerful: artificial intelligence stocks surged while nearly everything else stumbled. The S&P 500 gained 43 points, or 0.58%, to finish at 7,444. The Nasdaq climbed 314 points, a 1.21% jump, closing at 26,402. The Dow Jones Industrial Average, by contrast, fell 67 points. The split told you everything about where money was flowing.

Nvidia led the charge, rising 2.3% and serving as the primary engine lifting the broader index higher. Micron Technology jumped 4.8%. On Semiconductor, a smaller player, surged 11.1%—the day's biggest gainer among the semiconductor heavyweights. The semiconductor index itself rebounded sharply after stumbling the day before. Six of the seven largest AI-focused megacap companies finished in the black. Tesla also gained. The momentum felt almost defiant, as if investors had collectively decided that artificial intelligence was the only story that mattered.

There were hints of larger geopolitical forces at work. Jensen Huang, Nvidia's chief executive, received an invitation to accompany President Donald Trump on a trip to China, where negotiations could potentially restore the company's ability to ship AI chips to the world's second-largest economy. Meanwhile, SoftBank Group reported that its profits over the past twelve months had nearly quintupled compared to the prior year, driven almost entirely by returns on artificial intelligence investments. Alibaba, the Chinese technology conglomerate, accelerated growth in its AI and cloud computing division during the most recent quarter, and its American-listed shares climbed 8.2% despite the company's overall results falling short of analyst expectations.

But the broader economic picture was darkening. The Labor Department released wholesale inflation data showing prices had risen 1.4% in April—the largest monthly increase in four years. This followed a report the previous day showing consumer inflation had also accelerated. The culprits were multiple: tariffs, adverse weather driving up food costs, and most significantly, crude oil prices that had surged due to the conflict with Iran, which had disrupted global petroleum flows. Brent crude fell 2% on Wednesday to $105.63 per barrel, but remained far above the $70 level before the conflict began. The International Energy Agency warned that global oil inventories were depleting at a record pace.

The inflation data had immediate consequences for how investors thought about the Federal Reserve's next moves. Recent weeks had brought hope that interest rates might fall soon. That hope evaporated. Susan Collins, president of the Federal Reserve Bank of Boston, said on Wednesday that a rate increase could become necessary if inflationary pressures did not ease. The yield on the ten-year Treasury bond climbed to 4.47%, up from 3.97% before the Iran conflict began. Higher rates punished sectors that depend on low borrowing costs. American Electric Power fell 3% after announcing a $2.6 billion stock offering. Birkenstock Holding, the shoe manufacturer, collapsed 12.9% after blaming its quarterly deterioration on American tariffs and other headwinds.

The tension in the market was palpable. Corporate earnings and artificial intelligence momentum were acting as shock absorbers, preventing a broader decline. But the road ahead looked considerably rougher. Morgan Stanley raised its year-end target for the S&P 500 from 7,800 to 8,000 points, betting that American stocks had room to run as long as companies continued delivering solid results. Tim Waterer, chief market analyst at KCM Trade, captured the precarious balance: corporate profits and AI enthusiasm were the market's primary buffers, but the path was becoming considerably more treacherous. Internationally, European and Asian indices mostly closed higher. South Korea's Kospi led the way with a 2.6% gain, recovering some of the previous day's 2.3% loss, which had been triggered when a government official suggested a possible redistribution of extraordinary AI sector profits.