U.S. stock markets are turning to what they know best this week, even as investors continue to show their nerve over the prolonged Strait of Hormuz shutdown and the imminent trade talks with China.

Tech is back in sharp focus ahead of this week’s delayed summit between President Donald Trump and China’s leader Xi Jinping, which is expected to include a host of U.S. executives including Nvidia’s Jensen Huang. 

The last-minute addition of the CEO of the world’s most valuable company—which has been trying to gain access for its most-valuable AI-powering chips from both leaders for quite some time—suggests a level of dealmaking preparation from a U.S. president stymied by events in Iran. 

U.S. inflation soared to 3.8% last month, CPI data indicated Tuesday, largely as a result of energy price spikes tied to the war in the Middle East, which has pushed crude well north of $100 a barrel and indicated elevated prices well into the back half of the year. 

Little progress has been made in peace talks—which have largely centered around comments from Trump made either to U.S. reporters or through his Truth Social platform—and a deal with China on trade later this week could provide the spark that lifts stocks outside of the tech space heading into the summer months and beyond. 

For the moment, however, investors are willing to reach for what they know—the so-called Magnificent Seven giants are on the march again, and adjacent tech names are back in favor following solid gains in South Korea and Japan tied to a return of investor sentiment on AI and the broader tech space. 

That could all change tomorrow. But for today, investors are going with what works.

—Martin Baccardax

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Consumer prices accelerated faster than expected in April, a sign the economic damage from the Iran war is showing up beyond gas stations and utility bills, and that could complicate the Federal Reserve’s plans. Kevin Warsh, expected to take over as Fed chair this week, has supported cutting rates.  

• Prices rose 0.6% in April from March, and 3.8% from the previous year, the fastest pace in three years. Without food and energy prices, the annual gain was 2.8%. Everything from fresh produce to beef got more expensive last month, and gasoline costs 28% more than a year ago. 

• More than 40% of the increase came from higher energy costs, which are up 17.9% over the past year, leaving households with less money to spend on other things. Shelter inflation doubled, while housing costs increased 0.6% from March.

• Warsh could be facing a supply shock the Fed’s traditional tools aren’t designed to fix, RSM chief economist Joe Brusuelas said. With the Strait of Hormuz still blocked and energy costs rising, inflation could climb above 4% next month and peak at 4.5% or higher, he said. 

• Seema Shah, chief global strategist at Principal Asset Management, now expects the Fed’s next interest-rate cut to come no earlier than December, with a real possibility of getting pushed into 2027. And the conversation has shifted to whether the Fed may need to raise rates if the war continues. 

What’s Next: The Senate is expected to vote as early as today to confirm Warsh as the next Fed chair, succeeding Jerome Powell, whose term in that role ends on Friday. The chamber already confirmed Warsh’s return to the central bank’s board of governors.

—Nicole Goodkind and Janet H. Cho

The bar for President Donald Trump’s long-anticipated summit with Chinese leader Xi Jinping is low. But the Iran conflict, questions about tariffs and a series of retaliatory moves from Beijing highlight potential tripwires even as the two leaders prioritize stabilizing the relationship.

• The U.S. delegation includes more than a dozen U.S. corporate executives for what is expected to be a pomp and circumstance-filled state visit, the first by a U.S. president since Trump’s last visit in 2017, which yielded $250 billion in purchase commitments from Beijing.

• Liu Pengyu, a spokesman for the Chinese embassy in Washington, D.C., said the two leaders would discuss “major issues concerning China-U.S. relations and world peace and development.” For investors, the best likely outcome would be to steady the relationship and preserve, and possibly extend, last fall’s detente. 

• The aim is to buy time for both sides—for the U.S. to reduce its reliance on China for rare-earths and magnets and shore up other critical supply chains, and for China to bide its time until there’s someone else in the White House and it is less reliant on the West.

• Iran complicates the situation. China is Iran’s biggest oil buyer and has reportedly supplied it with drones. The U.S. and China have already exchanged tit for tat, with the U.S. sanctioning five Chinese refineries accused of buying Iranian oil and Beijing prohibiting its companies from complying with the sanctions.

What’s Next: After recent visits with Chinese officials, geopolitical consultants said there is increased confidence in Beijing, especially as Chinese export growth hits records in the wake of the trade war as it sold more elsewhere and leveraged its chokehold on critical minerals.

—Reshma Kapadia

A federal appeals court granted the Trump administration a reprieve in its tariff policy, temporarily pausing a recent trade court decision that called his global 10% tariffs illegal. The appeals court’s stay of that decision means the administration can continue to charge the import levies until a final ruling.

• The administration had appealed the Court of International Trade’s 2-1 decision last week that said Trump didn’t have the authority to impose the tariffs. But it was a limited ruling that only applied to a few small businesses and one of the 24 states that sued to block them.

• Trump slapped the 10% tariffs on imports globally in February, using Section 122 of the Trade Act of 1974, which allows the president leeway to impose tariffs under certain conditions. But the trade court said those conditions don’t exist, granting an injunction to two importers and Washington state. 

• Now that the trade court’s decision is stayed, the two businesses and Washington state will have to pay the tariffs for now and can’t get refunds yet, says Stan Veuger, a senior fellow at the American Enterprise Institute who wrote an amicus brief supporting the lawsuits challenging the tariffs.

• Augustine Lo, a Dorsey & Whitney partner who advises clients on customs and trade law, called the stay an interim measure that preserves the status quo to allow more time to consider the merits of the case against Trump’s Section 122 tariffs, which are in effect through July.  

What’s Next: Trump imposed the 10% tariffs after the Supreme Court struck down the global tariffs he announced last year using emergency powers. Importers are getting refunds for those earlier levies. Customs and Border Protection’s Office of Trade said it is refunding nearly $35.5 billion so far.

—Janet H. Cho

Consumers have borne higher gasoline prices for months, but the impacts of the Iran war are rippling through other sectors of the economy. In March, prices for polyethylene, the most commonly used plastic globally, rose to their highest point in nearly four years, a problem for companies that need the material.

• Usually, every $10 rise in oil prices adds about five cents a pound to polyethylene, says Joel Morales from Chemical Market Analytics. A 10% increase in oil lifts polyethylene prices by roughly 3.5%, a Barron’s analysis of five years of price data found. Plastic prices spiked after Russia’s 2022 invasion of Ukraine.

• Companies that use plastic for manufacturing and packaging feel the impact of those price hikes almost immediately, but it can take months for the increases to reach consumers. That lag can create “margin pressure” in the near-term, says Christine Barnhart, head of industry engagement and alliances at Miebach Consulting.

• Companies such as Mattel and Procter & Gamble have historically had lower gross margins as plastic prices rose. In a recent earnings call, P&G CFO Andre Schulten said that if oil prices continue to hover around $100 a barrel, the company would face an additional $1 billion in annual, after-tax costs.

• While that dynamic isn’t always apparent across consumer goods companies—gross margins at PepsiCo, Coca-Cola, and Unilever don’t show a strong relationship to plastic prices—investors see the current price spike as a headwind. Shares of these companies have trailed the S&P 500’s gains since the war started. 

What’s Next: Plastic producers such as Dow and LyondellBasell however, are getting a boost from higher margins. “You couldn’t write a better script for how to return profitability to North American plastic producers,” Morales tells Barron’s.

—Elijah Nicholson-Messmer