Stocks opened lower Friday as Wall Street weighed signs of increased hostility between the U.S. and China against economic data that signaled easing inflation and stabilizing consumer sentiment.
Included in the news hinting at rising tensions between the U.S. and China was a Bloomberg report that the Trump administration is preparing for broader sanctions for the Chinese tech sector.
The expanded restrictions would target subsidiaries of China's biggest technology companies that are being used to circumvent current sanctions.
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Additionally, President Donald Trump raised some eyebrows after posting on Truth Social that China "HAS TOTALLY VIOLATED ITS AGREEMENT WITH US. So much for being Mr. NICE GUY!"
Earlier this month, the two countries agreed to a 90-day truce that drastically lowered retaliatory tariffs.
But the main benchmarks finished well off their intraday lows after President Trump told reporters on Friday that he is sure he'll speak to Chinese President Xi Jinping and "hopefully we'll work that out."
At the close, the blue chip Dow Jones Industrial Average was up 0.1% at 42,270, while the broader S&P 500 ended fractionally lower at 5,911, and the tech-heavy Nasdaq Composite fell 0.3% to 19,113.
All three indexes finished the week and the month higher.
Inflation nears the Fed's target
Ahead of the opening bell, data from the Bureau of Economic Analysis showed the Personal Consumption Expenditures (PCE) Price Index – the Fed's preferred measure of inflation – was up 0.1% month over month in April and 2.1% year over year.
The annual increase is lower than March's 2.3% and within striking distance of the Federal Reserve's 2% inflation target.
Core PCE, which excludes volatile energy and food prices, also rose by 0.1% on a monthly basis and was 2.5% higher year over year.
"Inflation came in reasonably subdued as expected," says Scott Helfstein, head of investment strategy at Global X.
"This is yet another good report for the Fed and could give them latitude for another rate cut late summer, though they are predisposed to be patient and let events play out," Helfstein adds.
Consumer sentiment stops falling
Meanwhile, the University of Michigan said its Consumer Sentiment Index was unchanged from April to May, remaining at 52.2.
This is an improvement over the preliminary reading of 50.8, which would have been the lowest reading on record going back to 1952 if it had held.
The report indicated that consumers' outlook improved after the U.S.-China trade truce, though sentiment remains at historically low levels, having fallen 24.5% year over year.
"Overall, consumers see the outlook for the economy as no worse than last month, but they remained quite worried about the future," says Joanne Hsu, director of the surveys of consumers at the University of Michigan.
Ulta shines after beat-and-raise quarter
In single-stock news, Ulta Beauty (ULTA) was the best S&P 500 stock on Friday, rallying 11.7% after the cosmetics retailer reported better-than-expected fiscal first-quarter earnings thanks to strong sales of budget-friendly options from e.l.f. Beauty (ELF), as well as celebrity brands.
The company also raised its full-year profit forecast and lifted the top end of its comparable-sales outlook.
Ulta's results mark "a major earnings upside surprise" in a "difficult beauty backdrop," says Oppenheimer analyst Rupesh Parikh.
The analyst lifted his price target on the consumer discretionary stock to $510 from $465, noting that he's "increasingly confident" in Ulta's ability to reaccelerate same-store sales "and drive a major profit inflection in fiscal 2026."
Parikh's new price target represents implied upside of almost 9% to today's closing price.
As for other retail stocks moving on earnings Friday, membership club Costco Wholesale (COST) gained 3.1% on its earnings beat. Apparel retailer Gap (GAP) plunged 20.2% after saying tariff costs could reach $250 million to $300 million.
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