US President Donald Trump has expressed an unexpected embrace of rising inflation, stating, ‘I love the inflation,’ despite the US headline consumer price index surging to a three-year high of 4.2 per cent in May. Trump linked this to the Iran conflict, suggesting inflation would rapidly subside post-peace deal. However, fresh US strikes against Iran swiftly overshadowed these remarks, shattering a fragile ceasefire and intensifying geopolitical tensions.
This escalation immediately rattled investors, leading to a sharp downturn on Wall Street. The S&P 500 fell 1.6 per cent, Nasdaq dropped 2 per cent, and the Dow Jones Industrial Average recorded its worst trading day this year, down 1.9 per cent. This retreat followed a significant jump in US jobs numbers and rising bond yields, with the 10-year US Treasury yield hitting 18-month highs. The VIX index, measuring market volatility, climbed 11 per cent, reflecting a notable sentiment shift.
Previously bolstered by an artificial intelligence boom and record highs, the market’s narrative has swiftly changed. Doubts about practical returns from AI spending are emerging, highlighted by major technology firm Oracle. Despite strong first-quarter returns, Oracle warned it needs to raise US$40 billion in debt and equity, double earlier predictions, causing its shares to fall. The impending IPO of space exploration company SpaceX also faces a trickier market backdrop amidst these growing uncertainties.
Analysts, like Carlyle’s Jeff Currie, warn strategic energy reserves are nearly exhausted, potentially leading to a significant surge in oil prices if the Iran conflict persists. This amplifies inflationary pressures, placing President Trump under scrutiny given low public satisfaction with his handling of living costs. While earnings fundamentals remain largely intact, geopolitical tension, inflation fears, and re-evaluating tech valuations suggest heightened market volatility ahead.
