US OPEN: Wall Street mixed on US-China tensions and better inflation outlook ↕️

• Small caps lead losses amid US-China tensions revival

• Inflation expectation cold down in May, PCE drops marginally

• Gap shares sell off on tariff costs

Wall Street sees a new wave of risk-off sentiment, as Donald Trump reignited US-China tensions with his latest social media statement that “China has totally violated its agreement with us.” The president’s accusation comes amid stalled trade talks and fresh concerns over China’s compliance, particularly regarding critical minerals and rare earth magnets. This marks a setback after the recent tariff easing agreement reached in Switzerland, which had briefly lifted investor hopes for a trade détente. 

Meanwhile, the US administration continues to tighten restrictions, including revoking some Chinese student visas and limiting technology exports, further straining relations. With no recent high-level communication between Trump and Chinese President Xi Jinping, market uncertainty intensifies as investors grapple with the potential fallout of escalating geopolitical friction and its impact on global economic growth.

In consequence, Friday’s opening has been defined by losses on major US indices, albeit the better-than-expected University of Michigan report helped to narrow today’s gap. Russell 2000 slides the most (-0,4%), S&P 500 and Nasdaq are flat, while Dow Jones trades slightly in the green (+0,1%)

Macro update

US inflation data showed a slight easing, with headline inflation coming in below expectations and core inflation dipping minimally (2.5% from 2.6%) but still above the Fed’s target. Despite strong income growth, consumer spending slowed, reflecting cautious behavior. Tariffs may keep PCE inflation elevated, potentially limiting consumption’s contribution to GDP growth in months to come.

The University of Michigan Consumer Sentiment Index rose slightly to 52.2 in May’s second reading, steady from April. Year-ahead inflation expectations eased to 6.6%, and the five-year outlook dropped to 4.2%, the first decline since December 2024. Improvements in current conditions and expectations followed a temporary tariff pause on Chinese goods, helping ease consumer worries.

US100 (D1 interval)

The Nasdaq 100 has once again pulled back after hitting resistance near the 21,530 level, highlighting the market’s struggle to push the tech-heavy index toward its all-time highs amid ongoing tariff uncertainties affecting global tech companies. A mix of mostly positive macro data and aggressive tariff concerns has kept the index confined to a tight range as the week closes. The US100 remains just below overbought territory, leaving room for a potential pullback toward the 20,500 level if tariff issues start to outweigh the recent strong earnings from major tech firms.

Source: xStation5

Company news:

• American Eagle (AEO.US ) is down 1% after the company missed Q2 operating income estimates and forecasted weaker sales, driven by higher discounts amid assortment misses and inventory write-downs. Management withdrew its full-year outlook due to macro uncertainty but plans $275 million in 2025 capital expenditures.

• Cooper Cos (COO.US) plunges nearly 15% after the company lowered its organic growth outlook for FY25 despite beating Q2 earnings and revenue estimates. JPMorgan downgraded the stock, citing mixed execution and a slower market recovery, while other analysts view guidance as conservative but highlight solid fundamentals and strong growth in daily silicone hydrogel lenses and surgical segments.

• Gap (GAP.US) slumps 20% after warning of a $250–$300M tariff hit and ongoing weakness at Banana Republic and Athleta. Despite strength at Old Navy and Gap, investor sentiment soured due to trade headwinds and slow brand turnarounds. Guidance excludes potential tariff costs, adding near-term uncertainty. While management is executing a brand refresh and reporting solid core performance, external pressures and soft discretionary demand may weigh on momentum.