(Updates to mid-afternoon trading)

* Indexes down: Dow 0.81%, S&P 500 0.67%, Nasdaq 0.73%

* Trump-Xi summit produces scant results

* Jerome Powell's term as Fed chair ends

* Dexcom ( DXCM ) climbs after plans to revamp board panel with

Elliott

* Microsoft ( MSFT ) gains after Bill Ackman's Pershing Square

discloses stake

By Stephen Culp and Ragini Mathur

NEW YORK, May 15 (Reuters) - U.S. stocks retreated from

artificial-intelligence-fueled record highs on Friday, as

spiking crude prices ignited global inflation fears.

All three major U.S. stock indexes veered lower as a jump in

benchmark Treasury yields, reflecting surging energy prices and

concerns about long-term inflation, offered an attractive

alternative to higher-risk equities. The stock indexes were off

session lows, however.

"There's a realization that the market had gotten way ahead

of itself," said Kenny Polcari, chief market strategist at

Slatestone Wealth in Jupiter, Florida. "It wasn't paying enough

attention to what the bond market and economic data is telling

it. It was caught up in this momentum AI trade."

Crude prices surged after combative comments from U.S.

President Donald Trump and Iran's Foreign Minister Abbas Araqchi

raised doubts as to whether their countries' fragile truce would

hold and dampened hopes that normal traffic through the crucial

Strait of Hormuz would soon resume.

The yield on 10-year Treasury notes, an

indicator of global borrowing costs, touched its highest level

since May 2025, when markets were reeling from Trump's

"Liberation Day" tariff proclamation.

Global bond yields also jumped on growing evidence of the Iran

war's widespread economic damage.

Exacerbating inflation concerns arising from the war with Iran,

Trump's summit with Chinese President Xi Jinping appeared to

yield few tangible results.

END OF POWELL ERA

Friday marks Jerome Powell's last day as U.S. Federal

Reserve chair, a position he has held through the pandemic,

periods of inflation, and interest rate hiking and cutting

cycles.

Incoming Chair Kevin Warsh is saddled with the potential

need for a rate hike if a protracted Iran war leads to sticky

inflation.

"The market is going to test Kevin Warsh," Polcari added.

"They're going to press him to see what he really stands for."

The odds of the Fed hiking interest rates by 25 basis points

in December are approaching 40%, up from 13.6% a week ago,

according to CME Group's FedWatch tool.

The Dow Jones Industrial Average fell 406.40 points,

or 0.81%, to 49,657.06, the S&P 500 lost 50.23 points, or

0.67%, to 7,451.01 and the Nasdaq Composite lost 195.89

points, or 0.73%, to 26,439.34.

Among the 11 major sectors in the S&P 500, energy shares

jumped 1.6%. The 10 remaining sectors lost ground, with

materials and utilities suffering the

steepest percentage losses.

The Philadelphia SE Semiconductor Index slid 2.3%,

dragged lower by stocks that have benefited from the AI

hyperscaler phenomenon.

Nvidia ( NVDA ) and AMD fell by 2% and 3.1%,

respectively, while Intel ( INTC ) dropped 5.1%.

Microsoft ( MSFT ) rose 4.4% following the disclosure of a new

position in the company taken by Bill Ackman's hedge fund

Pershing Square.

Dexcom ( DXCM ) jumped 6.7% following the medical device maker's

announcement that it will appoint two independent directors and

revamp a board committee in collaboration with activist investor

Elliott Investment Management.

Ford dropped 6.7%, retreating from a near 21% surge

over the last two sessions on optimism over the automaker's

energy storage business.

Declining issues outnumbered advancers by a 3.78-to-1 ratio

on the NYSE. There were 88 new highs and 146 new lows on the

NYSE.

On the Nasdaq, 1,163 stocks rose and 3,484 fell as declining

issues outnumbered advancers by a 3-to-1 ratio.

The S&P 500 posted 12 new 52-week highs and 27 new lows

while the Nasdaq Composite recorded 47 new highs and 132 new

lows.