The S&P 500 and Nasdaq advanced Tuesday after June inflation came in below expectations, easing Treasury yields and reviving technology shares even as escalating Middle East tensions kept oil prices elevated.
By yourNEWS Media Newsroom
U.S. stocks finished higher Tuesday as a softer-than-expected inflation report reduced concerns about an imminent Federal Reserve interest-rate increase and helped major technology companies recover from sharp losses in the previous session.
The S&P 500 gained 0.4%, while the technology-heavy Nasdaq composite rose 0.9%. The Dow Jones Industrial Average edged up by less than 0.1%, held back by a historic decline in IBM shares.
Investors welcomed data showing that consumer prices in June were 3.5% higher than a year earlier. The annual inflation rate was down substantially from 4.2% in May and below the 3.9% increase economists had forecast.
The report sent Treasury yields lower and prompted traders to sharply reduce their expectations that the Federal Reserve would raise interest rates at its meeting later this month.
Markets were assigning less than a 17% probability to a rate increase following the inflation release, down from nearly 42% one day earlier, according to CME Group data.
Lower inflation can give the central bank more room to leave borrowing costs unchanged. Higher interest rates can restrain price increases, but they also raise financing costs, slow economic activity and place pressure on stocks, bonds and other investments.
The yield on the 10-year Treasury fell to 4.58% from 4.62% late Monday, ending its recent upward momentum. The benchmark yield had climbed from 3.97% before the war with Iran began.
Technology and semiconductor shares provided much of Tuesday’s market support after falling heavily Monday amid renewed questions about whether enthusiasm surrounding artificial intelligence had driven valuations too high.
Micron Technology climbed 4.6%, and Nvidia rose 4.3%.
Both companies had been among the largest drags on the S&P 500 during the previous session. Micron fell 4.4% Monday, while Nvidia declined 3.5%.
AI-related shares have experienced pronounced swings as investors weigh strong demand for chips and data-center infrastructure against concerns that enormous spending on the technology may not produce the expected gains in profitability and productivity.
Major banks also supported the broader market after reporting stronger-than-expected quarterly earnings.
Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs and Wells Fargo each posted profits exceeding analysts’ estimates for the April-through-June quarter.
The results showed strength in trading operations and indicated that American consumers continued spending despite persistent inflation and economic uncertainty.
Most of the banks’ shares rose after the announcements. Goldman Sachs surged 8.3%, while Citigroup moved in the opposite direction and fell 4.7%.
The reports marked the beginning of a closely watched corporate earnings season. With major stock indexes trading near record levels, companies face pressure to produce substantial profit growth capable of supporting their elevated valuations.
IBM was the market’s most notable exception Tuesday.
The company’s stock plunged 24.4%, making it the largest drag on both the S&P 500 and the Dow. The decline put IBM on course for its worst single trading day since at least 1972, according to FactSet.
IBM CEO Arvind Krishna said the company’s software and infrastructure businesses underperformed during the latest quarter as customers redirected spending toward servers, storage systems and memory products ahead of anticipated AI-related price increases.
“These conditions require our teams to execute perfectly, and this quarter we faltered,” Krishna wrote in a letter to investors. “We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected, driving the majority of our shortfall.”
Although the inflation report encouraged investors, rising oil prices remained a threat to continued progress on consumer costs.
Fighting between the United States and Iran has raised concerns that traffic through the Strait of Hormuz could be restricted. The narrow waterway provides a crucial route for oil tankers leaving the Persian Gulf and carrying crude to international markets.
Brent crude, the global oil benchmark, briefly climbed above $87 per barrel Tuesday morning.
The advance followed a nearly 10% surge Monday and temporarily returned Brent to its level before the United States and Iran reached an interim agreement in the middle of last month to suspend their fighting.
Oil later surrendered part of its advance. Brent settled at $84.73 per barrel, up 1.7% from Monday’s close.
President Donald Trump helped ease some concern after withdrawing his Monday threat to impose a 20% charge on all cargo traveling through the Strait of Hormuz as reimbursement for protection provided by the U.S. military.
A sustained oil-price increase could complicate the inflation outlook by raising gasoline, transportation and production expenses throughout the economy.
Federal Reserve Chair Kevin Warsh appeared before lawmakers on Capitol Hill for the first time since assuming leadership of the central bank.
Warsh pledged to make elevated inflation “a thing of the past” but did not indicate whether the Fed would increase, reduce or maintain interest rates at its upcoming meeting.
The June inflation figures strengthened the argument for leaving rates unchanged, though policymakers must still evaluate oil prices, economic growth, employment and other incoming data.
International markets generally moved higher.
European indexes posted modest gains following a stronger session in Asia.
Japan’s Nikkei 225 advanced 0.7%, helped by a 3.3% increase in SoftBank Group shares.
SoftBank is a major investor in artificial intelligence. Chairman Masayoshi Son rejected claims during a speech in Tokyo that spending on AI capacity had developed into a speculative bubble.
Chinese stocks also strengthened.
The Shanghai market climbed 1.4% after government data showed China’s exports jumped 27% in June compared with the previous year. Strong global demand for computer chips and other technology associated with AI helped drive the increase.
Tuesday’s market performance reflected competing forces confronting investors.
Cooling U.S. inflation, falling bond yields, recovering chip shares and strong bank profits supported stocks. At the same time, the Iran conflict and the threat of disruption to oil shipments through the Strait of Hormuz continued to pose risks to inflation, economic growth and financial markets.
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