U.S. stocks dip as investors weigh inflation, China-U.S. trade talks

U.S. stocks ended lower on Wednesday, as investors reacted to a softer-than-expected inflation report and weighed tentative progress in trade negotiations between China and the United States.

The Dow Jones Industrial Average dipped just 1.10 points, essentially flat, to close at 42,865.77. The S&P 500 dropped 16.57 points, or 0.27 percent, to 6,022.24, while the Nasdaq Composite lost 99.11 points, or 0.50 percent, ending at 19,615.88.

Losses were broad but modest across sectors. Consumer discretionary and materials stocks led the declines, falling 1.02 percent and 0.98 percent, respectively. Energy stocks gained 1.49 percent, supported by higher oil prices, while utilities rose 0.05 percent.

Markets showed a muted response as China and the U.S. concluded their trade talks in London.

Earlier in the day, stocks had briefly rallied after the U.S. Consumer Price Index (CPI) for May came in below expectations. Headline inflation rose just 0.1 percent from April, compared to forecasts of a 0.2 percent increase. Core CPI, which strips out volatile food and energy prices, was up 2.8 percent year over year, matching April's pace. On a monthly basis, core prices also rose 0.1 percent, down from 0.2 percent the previous month.

The inflation data raised investor hopes that the Federal Reserve may cut interest rates later this year. According to the CME FedWatch Tool, the odds of a September rate cut rose to 57.2 percent, up from 53.5 percent just a day earlier. Treasury yields dropped in response, with the 10-year yield easing to 4.41 percent.

"Combined with the solid May jobs report, the CPI data reduce the chances of a nasty bout of stagflation," Bank of America U.S. economist Stephen Juneau wrote in a note to clients on Wednesday.

However, American economist Claudia Sahm, speaking to Yahoo Finance, cautioned against reading too much into the latest inflation figures. "This report doesn't necessarily tell us where we're headed by the end of the year," she said, adding that the economic effects of the Trump administration's current trade policies are still unfolding.

In corporate news, mega-cap tech stocks were mostly lower, with Apple and Amazon each down about 2 percent, while Nvidia, Alphabet, and Meta each dropped about 1 percent. Chip giant Broadcom was up 3.38 percent, while Microsoft and Tesla rose slightly.

Intel tumbled 6.46 percent to lead S&P 500 decliners, giving back most of the big gains posted on Tuesday. Shares of Advanced Micro Devices were down 1.7 percent ahead of the company's "Advancing AI" event on Thursday.

(With input from Xinhua)