On the 14th (local time), the Standard & Poor's (S&P) 500 index and the Nasdaq ended higher together on the New York Stock Exchange (NYSE). With U.S. inflation data slowing far more than markets expected, fears eased that the Central Bank Federal Reserve (Fed) would raise its benchmark rate. In contrast, the Dow Jones industrial average, a collection of blue chips, was flat as shares of large information technology (IT) corporation IBM plunged.
The large-cap-focused S&P 500 rose 28.25 points (0.38%) to finish at 7,543.59. The tech-heavy Nasdaq also jumped 233.83 points (0.90%) to close at 26,107.01. The Dow, however, added just 9.63 points (0.02%) to 52,508.27, holding near the flat line.
SK hynix American depositary receipts (ADR) rose 27% to close at $193.92. Analysts said mechanical buying flooded in after asset manager GraniteShares and ProShares launched new 2x leveraged single-stock ETFs tied to SK hynix.
Analysts said investor sentiment strengthened as inflation jitters embedded across the U.S. economy eased. The June consumer price index (CPI) released by the U.S. Labor Department fell 0.4% from a month earlier. The annual inflation rate also dropped to 3.5%. CNBC reported it was the first time in six years that the CPI, a key gauge showing price changes for goods and services that typical consumers buy in daily life, turned lower.
With price pressures easing, worries that the Fed would soon raise rates again also fell sharply. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the probability that the Fed will raise rates in July plunged to 17% from 42% a day earlier. The FedWatch tool shows how interest-rate futures investors are projecting the Fed's future rate moves.
Tiffany Wilding of asset manager Pacific Investment Management said, "The inflation data came in better than expected, giving investors significant relief," adding, "This report has effectively removed the likelihood of a July rate hike." Skyler Wineand, chief investment officer (CIO) at asset manager Riegen Capital, also said, "Judging from the weaker-than-expected inflation data, the surge triggered by the Iran war is subsiding," adding, "It will keep the Fed on hold for the time being."
Still, Fed Chair Kevin Warsh showed a firm stance that "we will never tolerate inflation," giving no assurance yet on a rate pause. Warsh testified before the U.S. Congress on the day, saying, "The inflation spike of the past five years will now be a thing of the past." Brian Terrien of securities firm Edward Jones said, "By not pre-committing to a particular policy path, Chair Warsh reinforced the Fed's credibility to fight inflation."
Geopolitical tensions in the Middle East remained a risk factor for stocks. President Donald Trump withdrew his initial plan to impose a 20% fee on vessels transiting the Strait of Hormuz, a key global logistics chokepoint. After talks with Middle Eastern leaders, Trump said he had "decided to replace the fee with trade and investment transactions."
Despite news that the fee plan was scrapped, international oil prices rose. West Texas Intermediate (WTI) gained 2.1% to $79.79 a barrel. Brent also rose 1.98% to $84.95 in transactions. Kay Hay of Goldman Sachs Asset Management said, "While the inflation data eased immediate pressure for a rate hike, hostilities in the Iran region still leave the possibility of higher rates on the table."
Semiconductor corporation shares, which had tumbled the day before, rebounded across the board in a day. The VanEck Semiconductor ETF, which shows the broader trend of the chip industry, rose 2.5%. Applied Materials and Teradyne each climbed more than 3%. Lam Research and Micron Technology each surged about 5%. STMicroelectronics also jumped more than 2%. According to Bloomberg, volatility in chip stocks is moving by the most since the early days of the 2020 pandemic. Analysts said investors are locked in a tug-of-war between expectations for rising artificial intelligence (AI) demand and concerns about overvalued corporate valuations.
As the main second-quarter corporate earnings season kicked off, large financial institutions posted results that topped expectations across the board. Goldman Sachs reported second-quarter earnings per share of $20.98, far above the $14.48 expected. Helped by strong stock transaction performance, Goldman Sachs shares jumped 9%. JPMorgan Chase rose more than 2%, and Bank of America added 2%. Wells Fargo also beat market expectations thanks to higher fees in its asset management and investment bank institutional sector, lifting its shares more than 1%.
By contrast, shares of large IT corporation IBM plunged a staggering 25%, weighing on the Dow. Bloomberg said, "IBM's drop alone pulled the Dow down by about 425 points." IBM warned that second-quarter revenue would come in below market expectations due to weak demand in its software and infrastructure institutional sector. IBM Chief Executive Officer (CEO) Arvind Krishna sent investors a letter projecting a 7% decline in infrastructure sales, citing underperformance in the mainframe program.