General Electric And Caterpillar Lead XLI Pullback: What's Going On?

The Industrial Select Sector SPDR Fund XLI declined 2.4% to $123.71 Thursday morning, giving back part of its dramatic gains from the prior session, as investors moved to lock in profits despite a surprisingly soft inflation report that reinforced Wednesday's bullish macro shift.

What To Know: After surging more than 9% on news of President Donald Trump's 90-day pause on tariffs for non-retaliatory nations, XLI was down nearly 2% by mid-morning, reflecting broader market weakness and cautious repositioning.

The retreat comes even as fresh data from the Bureau of Labor Statistics showed inflation cooling more sharply than expected in March. Headline CPI fell to 2.4% year-over-year, the lowest since September, while core inflation eased to 2.8%, a level not seen in four years. Monthly inflation contracted by 0.1% — the weakest print since May 2020 — helped by a 6.3% drop in gasoline prices.

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The inflation data added to optimism that the front-loaded impact of tariffs may be less damaging than feared. However, that wasn't enough to extend Wednesday's euphoric rally, which saw the S&P 500 post its largest one-day percentage gain since 2008.

What Else: XLI, which tracks U.S. industrial giants like Caterpillar Inc CAT, General Electric Co GE, Union Pacific Corp UNP, Honeywell International Inc HON and 3M Co MMM, is particularly sensitive to trade policy, global demand expectations and inflation.

While the tariff pause and disinflationary surprise support a more favorable backdrop for cyclical sectors, Thursday's pullback likely reflects near-term profit taking after outsized gains and lingering uncertainty around the durability of the policy shift.

Markets are now recalibrating expectations ahead of the Federal Reserve's May meeting, with rate cut odds rising sharply post-CPI.

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