Stocks in the U.S. surge to new highs, bolstered by speculations about potential reductions in interest rates.
Market Recap: Stocks Rally on Improved Inflation Outlook
Stocks surged on Tuesday, with the Dow Jones Industrial Average climbing 483 points, or 1.1%, as investors breathed a sigh of relief following better-than-expected inflation data. The S&P 500 rose 1.1% to a new all-time high, while the Nasdaq composite jumped 1.4% to set a new record.
The August inflation numbers showed inflation holding at moderately low levels. The headline Consumer Price Index (CPI) stood at 2.86%, slightly above the Fed's 2% target, but core CPI and Personal Consumption Expenditures (PCE) were closer to the target, at 3.02% and 2.92% respectively. These figures suggest that inflation remains somewhat elevated but steady, moving closer to the Fed's target range.
This improvement in inflation data is likely to influence the Federal Reserve's interest rate decision, reducing pressure to raise rates further and increasing the possibility of a rate cut in September. However, Fed officials have flagged lingering inflation risks, so they will remain cautious and data-dependent in their September decision.
The better-than-expected inflation report gave the Federal Reserve leeway to consider a rate cut in September, providing a boost to stocks. Other central banks around the world have been lowering interest rates, with Australia's central bank cutting rates for the third time this year on Tuesday.
Not all companies fared well, with Celanese sinking 13.1% despite delivering a better profit than expected. Cardinal Health dropped 7.2% despite reporting a stronger profit for the latest quarter than analysts expected, with revenue falling short of forecasts.
In other news, Circle Internet Group reported a larger loss for the latest quarter than analysts expected, but its total revenue and reserve income grew 53%.
Economists warn that upcoming data could make the Fed's decisions not so easy. The U.S. consumers paid prices for groceries, gasoline, and other costs of living that were 2.7% higher in July than a year earlier, the same as June's rate.
Elsewhere in Asia, Japan's Nikkei 225 jumped 2.1%, and South Korea's Kospi fell 0.5%. Intel's stock rose 5.6% following Trump's positive comments about its CEO.
The yield on the 10-year Treasury rose to 4.28%, while the yield on the two-year Treasury fell to 3.73%. Lower interest rates could boost investment prices and the economy by making it cheaper for U.S. households and businesses to borrow.
In summary, Tuesday saw a positive day for the stock market, with stocks rallying on improved inflation data. The Fed's interest rate decision in September now looks more likely to lean towards a rate cut, but Fed officials will remain cautious due to lingering inflation risks.
Investors saw a boost in investing opportunities due to the better-than-expected inflation report, which could lead to a potential rate cut by the Federal Reserve in September. The stock-market responded favorably to this news, with the Dow, S&P 500, and Nasdaq all setting new records.
