Wall Street rallies as inflation holds steady, rate cut hopes rise

U.S. stock markets closed sharply higher on Tuesday, with the S&P 500 and Nasdaq hitting new record highs after inflation data came in below expectations, boosting investor confidence in a potential interest rate cut by the Federal Reserve.

The Consumer Price Index (CPI) rose 2.7% year-on-year in July, unchanged from June, according to the U.S. Department of Labor. Analysts surveyed by Trading Economics and MarketWatch had expected a rise to 2.8%.

Cooling price pressures reinforced expectations that the Fed could cut rates by 25 basis points as early as September, with market participants now seeing a 90% chance of such a move.

Small business sentiment also improved, with the NFIB Small Business Optimism Index climbing to a five-month high of 100.3 in July from 98.6 in June.

Among major movers, United Airlines shares jumped 10.2%, Delta Air Lines gained 9.2%, and Southwest Airlines rose 5.7%. Tech giants Apple (+1.1%), Microsoft (+1.4%), and Alphabet (+1.2%) also posted gains.

Cardinal Health dropped 7.2% after announcing a $1.9 billion acquisition of Solaris Health. Shares in McDonald’s fell 0.9%, IBM and Johnson & Johnson were down 0.6%, and Mosaic lost 4%.

The Dow Jones Industrial Average rose 483.52 points (+1.1%) to 44,458.61, the S&P 500 gained 72.31 points (+1.1%) to 6,445.76, and the Nasdaq Co.