S&P 500 Stalls Near Record as GDP Cut and Sticky PCE Test Index Bulls

U.S. equity benchmarks moved into a more cautious phase on Thursday after fresh macro data gave index investors a less comfortable mix of slower growth and still-elevated inflation. The S&P 500 remained close to its latest record, but the tone beneath the headline index turned more selective as traders weighed whether earnings strength can keep offsetting pressure from the Federal Reserve, Treasury yields and volatile energy prices.

The latest data showed first-quarter gross domestic product was revised down to a 1.6% annualized growth rate from the earlier 2.0% estimate. At the same time, the April personal consumption expenditures price index rose 3.8% from a year earlier, while core PCE, which strips out food and energy, increased 3.3%. The monthly core reading was milder at 0.2%, but the annual figures remain high enough to keep rate-cut hopes restrained and rate-hike risk on trading desks.

The setup matters for the index market because the S&P 500, Nasdaq Composite and Dow Jones Industrial Average all entered the session after setting record closing highs. On Wednesday, the S&P 500 edged up to 7,520.36, the Dow rose to 50,644.28 and the Nasdaq finished at 26,674.73. Those levels leave little margin for disappointment when macro releases challenge the soft-landing narrative that has supported valuations.

Macro Data Complicates the Record-High Trade

The GDP revision pointed to softer consumer spending and weaker investment than previously estimated, two areas that matter directly for index earnings expectations. For bulls, the economy is still expanding and companies are continuing to deliver better-than-feared profits. For bears, the combination of slower growth and sticky inflation raises the risk that margins could come under pressure while the Fed has limited room to ease policy.

That tension was visible in the shape of Thursday’s trading. Large-cap indexes stayed near record territory rather than breaking sharply lower, suggesting investors are not yet abandoning the rally. But the data reduced the appetite for chasing every cyclical and growth pocket at once. When inflation remains above target and growth momentum cools, index leadership often narrows toward companies with visible cash flow, pricing power and durable demand.

Treasury yields are still a central part of the story. The 10-year yield hovered around 4.48%, keeping discount-rate pressure alive for long-duration growth shares. The 2-year yield near 4.04% also reflected a market that is not fully convinced the Fed can quickly pivot toward easier policy. For the Nasdaq, that means AI and software names need to keep producing strong earnings evidence to justify premium valuations.

Earnings Strength Keeps the Pullback Contained

Corporate results helped prevent the macro data from turning into a broader index selloff. Retail, consumer and cloud-software updates showed that parts of the economy are still producing upside surprises, even as households face higher prices and a lower personal saving rate. That earnings resilience has been the main reason the S&P 500 has continued to grind higher despite oil-market volatility and persistent inflation concerns.

The market’s reaction also showed a clear preference for companies that can connect revenue growth to margin expansion. In the current index environment, investors are rewarding firms that can turn AI demand, cloud spending or operational discipline into profit growth. They are less forgiving toward businesses where the AI story is still expensive, defensive or unproven.

For the Dow, record levels have been supported by a broader mix of industrial, health care and consumer names. For the Nasdaq, the burden remains heavier on megacap technology and AI-linked earnings. The S&P 500 sits between those two forces: it benefits from megacap strength, but its next leg higher may require broader participation from financials, industrials and consumer sectors.

Index Outlook Hinges on Breadth and Fed Expectations

The near-term question is whether the major benchmarks can consolidate near record highs without a sharper reset in valuations. A shallow pause would likely be constructive if market breadth improves and Treasury yields remain contained. A more fragile outcome would be a rally that depends almost entirely on a small group of AI leaders while consumer and cyclical shares fade.

Friday’s trading and the next round of inflation commentary will be important because the market has already priced in a high bar for earnings durability. If investors decide that sticky PCE keeps the Fed restrictive for longer, the S&P 500 could struggle to extend its breakout even if profits remain solid. If softer core monthly inflation gains more attention than the high annual readings, dip buyers may continue defending the record zone.

For now, the index market is not signaling panic. It is signaling a valuation check. The S&P 500’s record run has been built on a powerful mix of AI investment, resilient profits and hopes that inflation would gradually cool. Thursday’s data did not break that thesis, but it made it harder. That leaves Wall Street with a narrower path: earnings must keep improving, yields must stay contained and market breadth must expand beyond the strongest megacap winners.