U.S. stocks rose to fresh records on Tuesday as a cooler-than-expected inflation reading renewed hopes that the Federal Reserve will have room to cut rates later in the year.
The S&P 500 climbed about 1.1% to surpass its previous high, while the Dow Jones Industrial Average gained roughly 483 points, also up about 1.1%. The Nasdaq composite advanced about 1.4% to its own record as investors shifted bets toward easier monetary policy.
Inflation data for July suggested consumer prices rose a touch slower than economists expected, lifting hopes that rate cuts could come at the Fed’s September meeting. July’s inflation reading showed that consumers paid 2.7% more year over year for groceries, gasoline and other living costs, the same pace as June and below the 2.8% economists had anticipated. The softer read fed into expectations that the Fed may be able to ease policy without derailing price stability.
Market pricing reflected that confidence. Traders pushed the probability of a first-rate cut this year to about 94%, up from around 86% a day earlier, according to CME Group data. The Fed will receive one more inflation update and one more jobs report before the Sept. meeting, which ends on Sept. 17. The most recent jobs report surprised to the downside, underscoring the data-dependent stance of policymakers.
Even with the brighter inflation signal, investors weighed potential complications. An underlying measure of inflation, which some economists say better signals where prices are headed, reached its highest point since early in the year, contributing to some volatility in Treasury markets. Analysts warned that tariff effects could influence inflation in unpredictable ways, complicating the Fed’s task of balancing price stability with a robust job market.
Around the world, some central banks have started cutting rates, and Australia cut again on Tuesday. In the U.S., stock leaders and laggards moved in tandem with corporate results and policy expectations.
On the corporate front, Intel rose about 5.6% after President Donald Trump praised its CEO’s work, one day after the president publicly pushed for leadership changes. Circle Internet Financial, the issuer of the stablecoin USDC, edged higher even after reporting a larger quarterly loss, as revenue and reserve income grew strongly in its first quarter as a public company. In the downside, Celanese sank more than 13% even after beating on profit, with management noting ongoing challenges in most markets. Cardinal Health fell over 7% despite a beat on earnings, as investors weighed stronger profits against a revenue miss against high expectations for the stock.
In the bond market, the yield on the 10-year Treasury note rose to about 4.28% from 4.27%, while the two-year yield dipped to around 3.73% from 3.76%, reflecting the shifting expectations for near-term monetary policy.
Overall, the market has priced in a favourable tilt toward rate relief, supported by cooling inflation and a less restrictive stance from the Fed. Yet investors remain alert to the next wave of data, which will determine whether the rally can extend beyond September and how profits will keep pace with lofty equity valuations.
Summary: Inflation cooled enough to bolster rate-cut expectations, sending major indices to record highs as investors anticipate a more accommodative stance from the Fed, with upcoming inflation and jobs data crucial to the trajectory of policy and markets. A hopeful takeaway is that policy support could sustain consumer and business activity, though risks from tariffs and evolving inflation dynamics remain.