Stocks and bonds retreated as data showing U.S. business activity accelerated amid a pickup in inflation reinforced speculation the U.S. Federal Reserve will remain on hold.

The S&P 500 dropped below 5,300, with all megacaps down except Nvidia Corp. The giant chipmaker jumped over nine per cent on a solid outlook, topping the historic US$1,000 mark. The Dow Jones Industrial Average lost 1.5 per cent, led by a plunge in Boeing Co. — which said it will continue to burn cash this quarter and in the full year. Treasury yields climbed, with the move led by shorter maturities.

10-Year TIPS Demand Weakens at May $16 Billion Reopening Auction

Swaps now fully price in a full quarter-point rate cut in December, versus November a day earlier. Growth in activity at service providers this month was the fastest in a year and manufacturing output expanded at a quicker pace. Such resilience is making it difficult for inflation to cool, helping explain why the Fed is intent on keeping rates higher for longer.

“Fed members have indicated they want to see more progress on inflation – fortunately the U.S. economy still looks robust enough to take an extended rate pause,” said Don Rissmiller at Strategas Securities. “We continue to look for the first Fed rate cut in September.”

Treasury two-year yields climbed six basis points to 4.93 per cent. The dollar edged up. Bitcoin fell over four per cent. Oil and gold retreated.

U.S. policymakers earlier this month coalesced around a desire to hold rates higher for longer and “many” questioned whether policy was restrictive enough to bring inflation down to their target, according to Fed minutes released this week.

“The minutes are a reminder that while the Fed does not see another rate hike as likely — and certainly does not see it as a base-case — it will not rule out hikes if inflation does not behave,” said Chris Low at FHN Financial.

Meantime, another round of blowout earnings from artificial-intelligence darling Nvidia and the economy’s steady advance mean the S&P 500 likely has further room to rise, according to JPMorgan Chase & Co.’s trading desk.

“With the AI-theme still delivering and the macro hypothesis intact, we are likely to continue to make new all-time highs,” the team including Head of U.S. Market Intelligence Andrew Tyler wrote in a note to clients.

Key events this week:

• Japan CPI
• Canada retail sales
• Germany GDP
• U.S. durable goods, consumer sentiment, Friday
• Fed’s Christopher Waller speaks, Friday

Some market moves:

Stocks

• The S&P 500 fell 0.7 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 0.four per cent
• The Dow Jones Industrial Average fell 1.5 per cent
• The MSCI World Index fell 0.6 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.1 per cent
• The euro fell 0.1 per cent to $1.0809
• The British pound fell 0.2 per cent to $1.2693
• The Japanese yen was little changed at 156.88 per dollar

Cryptocurrencies

• Bitcoin fell 4.3 per cent to $66,428.35
• Ether fell 5.7 per cent to $3,534.98

Bonds

• The yield on 10-year Treasuries advanced five basis points to 4.48 per cent
• Germany’s 10-year yield advanced six basis points to 2.60 per cent
• Britain’s 10-year yield advanced three basis points to 4.26 per cent

Commodities

• West Texas Intermediate crude fell 0.9 per cent to $76.87 a barrel
• Spot gold fell two per cent to $2,331.70 an ounce

This story was produced with the assistance of Bloomberg Automation.