Wall Street surged to fresh records on Tuesday after softer-than-expected US inflation data reinforced expectations the Federal Reserve could cut interest rates as soon as September. The S&P 500 gained 1.13% to close at 6,445.76, its first-ever finish above 6,400, while the Nasdaq Composite rose 1.39% to 21,681.90. The Dow Jones Industrial Average added 483.52 points, or 1.10%, to end at 44,458.61.
Small-cap stocks led the charge, with the Russell 2000 climbing nearly three times the S&P 500’s percentage gain, as traders bet lower short-term borrowing costs will provide an outsized boost to smaller companies. All 11 sectors of the S&P 500 advanced, reflecting broad-based investor optimism.
Inflation data fuels rate cut hopes
The consumer price index rose 0.2% in July, matching June’s pace. On a 12-month basis, CPI increased 2.7%, slightly below the 2.8% expected. Core CPI, which strips out food and energy, rose 0.3% in the month and 3.1% year on year, a touch above forecasts but still seen as manageable.
The data bolstered bets that the Fed will deliver a 25 basis point rate cut at its mid-September policy meeting. The CME’s FedWatch Tool now shows a 94% probability of a cut, up from 85% before the report. Traders also increased wagers on additional cuts in October and December.
Tariff relief and economic outlook
The rally came a day after President Donald Trump extended a 90-day pause on higher tariffs for Chinese imports, easing some concerns that trade tensions could reignite inflationary pressures.
Investors will watch Thursday’s producer price index for further clues on wholesale inflation. Both reports precede the Fed’s annual Jackson Hole gathering later this month and its crucial September rate decision.
Australian market set to open higher
Australian shares are poised to follow Wall Street’s lead. The SPI 200 futures are up 14 points, or 0.2%, to 8,852. The local market will also be watching for earnings results from major companies, including Commonwealth Bank, AGL Energy, Treasury Wine Estates, Computershare, Evolution Mining, IAG and Arena REIT.
