Stock market today: S&P 500 closes above 6,400 for first time as rate cut bets jump after CPI inflation report

Equity markets rallied significantly on Tuesday, with the S&P 500 closing above 6,400 for the first time and the Nasdaq also reaching record highs. This surge was primarily driven by increased optimism for a September Fed interest rate cut, now priced at 94% by CME Group, following the release of a softer-than-expected headline Consumer Price Index (CPI) report at 2.7% year-over-year. While core inflation ticked up to 3.1%, the overall data bolstered expectations for monetary easing, leading to broad market gains.

Analysis

Equity markets experienced a broad and significant rally, pushing the S&P 500 above the 6,400 threshold for the first time and setting a new record high for the Nasdaq Composite. The primary catalyst for this upward momentum, which saw the S&P 500 and Dow Jones Industrial Average gain approximately 1.1% and the Russell 2000 surge nearly 3%, was a shift in monetary policy expectations following the latest Consumer Price Index (CPI) report. The market seized on the headline CPI figure, which at 2.7% year-over-year came in below the 2.8% consensus forecast, reinforcing bets for a near-term interest rate cut. According to CME Group data, traders are now pricing in a 94% probability of a rate reduction in September. However, this optimism overlooks a potentially concerning detail within the report: 'core' inflation accelerated to 3.1% from 2.9% in the prior month, indicating persistent underlying price pressures. In corporate-specific developments, Intel (INTC) shares outperformed with a gain over 5% after its CEO's meeting with Trump was framed positively, mitigating a recent political headwind for the company's leadership.

Key Decisions for Investors

• Given the market's rally is heavily predicated on a near-certain September rate cut, investors should closely monitor this week's upcoming Producer Price Index and retail sales data, as any signs of economic strength could rapidly reverse sentiment.
• The divergence between the market-pleasing headline CPI and the accelerating core CPI represents a key risk; a continuation of this trend could challenge the disinflationary narrative and force the Federal Reserve to maintain a hawkish stance, potentially unwinding recent gains.
• For those holding Intel (INTC), the positive resolution of the political pressure on its CEO removes a significant overhang, but the stock's future performance remains tied to fundamental industry drivers and broader market conditions.
• The recent change in leadership at the Bureau of Labor Statistics introduces a new political variable to economic data interpretation, warranting a higher degree of scrutiny on future government reports.