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The S&P 500 hovered near record highs on Wednesday as gains in chipmakers and megacap technology stocks helped support Wall Street, even as stronger-than-expected producer prices reinforced expectations that the Federal Reserve could maintain a restrictive monetary policy stance for longer.

Shares of Alphabet and Tesla rose 2.6% and 3.6%, respectively.

The Philadelphia Semiconductor Index climbed 2.3% and was testing a fresh record high after rebounding from losses in the previous session.

Producer Prices Rise Sharply

US producer prices increased more than expected in April, recording their biggest rise since early 2022, in another sign that inflationary pressures were intensifying amid the ongoing conflict involving Iran.

The data came a day after US consumer inflation recorded its sharpest increase in three years in April, pulling the S&P 500 and Nasdaq back from record levels.

Steve Wyett, chief investment strategist at BOK Financial, said inflationary risks had been building even before the Iran conflict escalated.

“Frankly, inflation pressures were already percolating before the Iran conflict, and while much of the damage can be undone if we get a quick resolution, today's PPI print is a reminder of the level and intensity of the coming price pressures at the consumer level,” Wyett said.

Fed Rate Expectations Turn More Hawkish

Traders are now expecting the Federal Reserve to keep interest rates unchanged throughout the year. According to the CME FedWatch Tool, markets are pricing in a 34.3% chance of a rate hike by December, compared with roughly 15% a week earlier.

Markets are also watching developments at the Federal Reserve closely after the Senate confirmed Kevin Warsh to the Fed board on Tuesday. Investors expect a potentially more hawkish central bank leadership, with Jerome Powell’s term as Fed chair ending on Friday.

Trump-Xi Summit Draws Attention

Meanwhile, US President Donald Trump arrived in Beijing accompanied by business leaders including Jensen Huang and Elon Musk ahead of his summit with Chinese President Xi Jinping.

Trump had earlier said he did not expect to ask Xi to help resolve the conflict involving Tehran during the two-day summit.

Investors remain concerned that a prolonged geopolitical conflict could keep energy prices elevated, further adding to inflationary pressure and complicating Federal Reserve policy decisions.

Market Snapshot

At 11:18 AM. ET, the Dow Jones Industrial Average fell 268.56 points, or 0.53%, to 49,494.88.

The S&P 500 gained 13.33 points, or 0.18%, to 7,414.29, while the Nasdaq Composite rose 185.49 points, or 0.71%, to 26,274.14.

Seven of the eleven major S&P sectors traded lower, with the utilities sector leading declines with a 1.7% drop.

Among individual stocks, Nebius Group jumped 15.9% after reporting nearly an eightfold rise in quarterly revenue.

Morgan Stanley also raised its year-end target for the S&P 500 to 8,000 from 7,800, citing strong corporate earnings and room for further gains in US equities.

Declining stocks outnumbered advancing shares by a ratio of 1.77-to-1 on the NYSE and 1.35-to-1 on the Nasdaq.

The S&P 500 recorded 23 new 52-week highs and 44 new lows, while the Nasdaq Composite posted 79 new highs and 163 new lows.