The S&P 500 and the Nasdaq closed higher Tuesday for a second straight day after softer-than-expected inflation numbers added to investor optimism from Monday when the U.S. and China announced a trade truce.
The Dow fell, however, weighted down by a steep slide in UnitedHealth's shares after the insurance bellwether suspended its annual forecast and its CEO stepped down.
On the data front, U.S. consumer prices rebounded moderately in April, with headline inflation increasing 0.2% last month after dipping 0.1% in March. Economists polled by Reuters had forecast that the CPI would rise 0.3%.
The CPI climbed 2.3% in the 12 months through April, after advancing 2.4% in the 12-month period until March.
"The sustainability of the carry-through from yesterday is positive. There was nothing in CPI to throw it off," said Carol Schleif, chief market strategist at BMO Private Wealth in Minneapolis.
Schleif described Monday's improvement in U.S. and China trade relations as going "from iceberg to 80 degrees spring day overnight" and said the 90-day pause on tariffs came in time for retailers to import goods to build up stocks for back-to-school and year-end holiday shopping.
Monday's relief rally followed Washington and Beijing's agreement to dial back stringent reciprocal tariffs, signaling a joint effort to stave off a global economic downturn. The U.S. will temporarily lower the extra tariffs it imposed on Chinese imports to 30% from 145% for three months, while Chinese duties on U.S. imports will fall to 10% from 125% in the same period. After the tariff truce, multiple brokerages lowered their odds of a U.S. recession.
According to preliminary data, the S&P 500 gained 41.04 points, or 0.70%, to end at 5,884.92 points, while the Nasdaq Composite gained 299.50 points, or 1.60%, to 19,007.84. The Dow Jones Industrial Average fell 278.06 points, or 0.66%, to 42,132.04.
The S&P 500's gains, driven by a resurgence in optimism over artificial intelligence, erased its year-to-date losses for 2025.
Among the S&P 500's 11 major industry sectors, technology was the biggest gainer during the session while healthcare was the biggest loser.
Both the S&P 500 and the Nasdaq have recovered losses since April 2 — or "Liberation Day" — when U.S. President Donald Trump announced sweeping reciprocal tariffs. A 90-day pause announced on April 9 for countries other than China, along with solid earnings reports and a limited U.S.-UK trade agreement last week, helped the S&P 500 and the tech-heavy Nasdaq regain lost ground.
However, traders leaned in to bets that the U.S. Federal Reserve would hold off on lowering interest rates until September, while still anticipating two 25-basis-point cuts by the end of the year.
After Tuesday's inflation reading and the U.S.-China trade detente, R. Burns McKinney, portfolio manager at NFJ Investment Group in Dallas, said, "It does give the Fed the ability to focus on the labor side of this dual mandate in the coming meetings."
A number of Fed officials are slated to speak this week, including Chair Jerome Powell on Thursday. Shares of crypto exchange operator Coinbase Global surged after an announcement that it is slated to join the S&P 500 on May 19.
With more than 90% of S&P 500 companies having reported earnings, numbers from retail giant Walmart will be on the radar later this week.