Inflation Rate Hits New High: 8 Key Items Shaping the Stock Market Thursday

These are the early headlines and other items poised to influence the market at the start of the trading day. As we share this collection of market drivers, U.S. equity futures point to a lower market open later on Thursday morning.

1. Pakistan stepped up diplomatic efforts on Thursday to hasten U.S. and Iran peace talks, as Tehran said it was reviewing Washington’s latest responses and President Donald Trump suggested he could wait a few days for “the right answers” from Tehran but was also willing to resume attacks on the country. (Reuters)

Iran’s Supreme Leader has issued a directive that the country’s near-weapons-grade uranium should not be sent abroad, two senior Iranian sources said, hardening Tehran’s stance on one of the main U.S. demands at peace talks… Israeli Prime Minister Benjamin Netanyahu has said he will not consider the war over until enriched uranium is removed from Iran, Tehran ends its support for proxy militias, and its ballistic missile capabilities are eliminated. (Reuters)

The reported comment by Iran’s Supreme Leader is sending oil prices and Treasury yields higher on Thursday morning amid growing concerns over inflation and questionable prospects for peace talks between the U.S. and Iran. We’ll continue to follow developments, their implications, and break it down for members.

2. The rate of input cost inflation quickened for the seventh consecutive month in May, hitting a three-and-a-half year high. Steeper rises were seen across both the manufacturing and services sectors, as well as in Germany, France and the rest of the eurozone as a whole. Meanwhile, average prices charged for goods and services rose at the fastest pace in 38 months, but the pace of inflation quickened only fractionally from that seen in April. (S&P Global)

Prices charged by UK private sector firms continued to rise sharply, albeit at a slightly slower pace than the 39-month high seen in April. However, manufacturers bucked the softer overall trend, with factory gate prices increasing to the greatest extent since July 2022. Goods producers often noted fuel surcharges and efforts to pass on rising raw material prices due to the Middle East war. (S&P Global)

The inflation findings in Thursday morning’s S&P Global (SPGI) Flash May PMI reports for the Eurozone and the U.K. indicate what we’re likely to hear when S&P publishes its Flash May PMI for the U.S. We’ll also be mining that report for insights on the pace of job creation in May. What we see in May new order activity could reveal if PMI strength in March and April was due more to the pull forward in demand or underlying strength in the U.S. economy.

Another reason to pay close attention to the Flash May PMI data: Wednesday’s April Fed meeting minutes showed that a majority of Federal Reserve officials thought that interest-rate increases will likely be appropriate if inflation continues to run above the central bank’s target. Recall, the hotter than expected April CPI and PPI data was published earlier this month, after that meeting.

3. PepsiCo is preparing to raise prices on some of its smaller bags of chips due to higher expenses in ‌the U.S… The planned increases were prompted by higher production, distribution and retail expenses in the U.S., and are not a direct response to ⁠the Iran war, which has caused energy prices to surge, the report said, citing a PepsiCo spokesman. (Reuters)

E.l.f. Beauty, already known for low-priced cosmetics, said Wednesday that it would cut prices on some of its products to spur demand. It made a tariff-induced $1 price increase across its name-brand products last August, but so far customers aren’t taking to the new spring-season product rollout as much as management had hoped. (MarketWatch)

We view PepsiCo’s (PEP) action as confirmation of the uptick in input cost inflation and the company aiming to preserve margins as best it can. Surely, it won’t be the only company to do so, which means more consumer facing pressure ahead. We see the move by E.l.f Beauty (ELF) as more focused on market share than margin discipline. Here too, E.l.f isn’t likely to be the only company moving down that path, and the Pro Portfolio will avoid those. In our experience, when all you have to compete on is price, it’s a slippery slope.

4. Walmart sales grew in the most recent quarter as shoppers looked for value and bought more online. The retailer’s U.S. comparable sales, those from stores and digital channels operating for at least 12 months, rose 4.1% in the three months ended May 1. Sales rose in its major segments and online, particularly from higher-income households, the company said… The company left its full year financial estimates unchanged and said that for the current quarter it expects sales to increase by 4% to 5%. (WSJ)

Walmart’s (WMT) April quarter comp sales came in below those reported by Target (TGT) and TJX Companies (TJX), and as we discussed on Wednesday, they are also below the adjusted April quarter comp sales Costco (COST) is poised to report next week.

While Walmart matched the market consensus EPS of $0.66 for its April quarter, its outlook for the coming ones came up a bit short. For the current July quarter, it guided EPS to $0.70 to $0.74, below the $0.75 consensus. For the full year, Walmart sees EPS of $2.75 to $2.85 versus the $2.92 consensus. Those misses are weighing on WMT shares ahead of the company’s earnings call on Thursday morning, an event that should bring more color on the year-over-year operating margin decline reported for the April quarter despite the 7.3% rise in total Aril quarter revenue.

5. Nvidia shares were up 0.7% in premarket trading following its fiscal first-quarter report after the market close on Wednesday… It’s not that there was anything wrong with the numbers. Nvidia’s April-quarter sales of $81.6 billion were up 85% from the same period a year earlier, and ahead of the $78.9 billion forecast by analysts. It also expects growth to accelerate to 95% in its fiscal second quarter. But with a market valuation above $5 trillion and a healthy run up already in recent weeks, investors seem disinclined to chase Nvidia stock higher immediately. (Barron’s)

While Nvidia (NVDA) delivered a beat-and-raise quarter, something the market has come to expect, our thinking it would need a wow-factor with its guidance to drive the shares higher following their latest run up appears correct. As it re-segmented its reporting, Nvidia, for the first time, broke down its data center revenue to show that for the reported quarter, its business was roughly evenly split between the large hyperscalers and its other clients, which include smaller data center groups such as CoreWeave (CRWV) as well as industrial and enterprise clients.

Interestingly enough, while many tend to focus on hyperscaler capex spending, Nvidia’s revenue from that group of AI-specific cloud firms grew faster quarter over quarter — a nice data point for AI adoption and usage.

In addition to the results, Nvidia added $80 billion to its share buyback program and raised its quarterly dividend to $0.25 per share, up from a prior $0.01 per share. The next dividend will be paid to all shareholders of record on June 4 on June 26. Also, Nvidia’s revenue forecast for the current quarter does not include any potential AI chip revenue from China as it waits for in-country approval.

We’ll have more to say on Nvidia’s results in a standalone note later on Thursday morning.

6. SpaceX filed publicly for what stands to be the largest-ever initial public offering, revealing billions in losses and a super-voting share plan allowing Elon Musk to keep the company under his control… The question for investors is whether the sum of Musk’s aspirations for SpaceX are worth valuing at as much as $2 trillion, viewed in light of financial disclosures that seem minuscule by comparison. SpaceX had a net loss of $4.28 billion on revenue of $4.69 billion for the first quarter, compared with a net loss of $528 million on revenue of about $4 billion a year earlier, the filing shows… The listing, which is targeted to raise as much as $75 billion, shows a company that’s growing quickly and burning through cash. For investors to buy into Musk’s dream, they’ll have to believe that SpaceX can capture a meaningful share of its perceived market opportunity — and accept that they won’t be able to remove him if it goes wrong. (Bloomberg)

We’ll have more thoughts on SpaceX’s IPO filing as we take a closer read on its more than 300 pages. We’ll be sure to note where it’s deriving its revenue, which appears to be primarily from its Starlink internet service, and where it is losing money. Both the space segment and AI were fueling those losses, which more than offset profits generated by Starlink. Per the filing, losses from SpaceX’s AI operations increased to $6.36 billion last year, compared with $1.56 billion in 2024. That should make OpenAI’s eventual S-1 filing even more of an interesting read. Reports indicate OpenAI is preparing to confidentially file a draft of its IPO documents with the SEC as soon as Friday.

7. Economic data today per TipRanks: Initial & Continuing Jobless Claims (Weekly), Philadelphia Fed Index (May), S&P Global Flash PMI (May), EIA Natural Gas Inventories (Weekly)

8. Companies reporting today per TipRanks: AM – Advance Auto (AAP), Advanced Drainage Systems (WMS), Lightspeed (LSPD), Ralph Lauren (RL), Shoe Carnival (SCVL), Walmart (WMT). PM – Deckers Outdoor (DECK), Ross Stores (ROST), Take-Two (TTWO), Workday (WDAY).