This week, the stock market experienced a historic rally fueled by new inflation data and prospects of lowering interest rates.
U.S. Stock Market Rally
The U.S. stock market reached historic highs this week. The S&P 500 closed above 6,400 for the first time, while the NASDAQ also recorded highs. The Dow Jones jumped nearly 500 points, adding positive sentiment to the market. Small-cap stocks, represented by the Russell 2000, soared nearly 3%. This performance came after fresh inflation data ignited hopes for a potential Federal Reserve rate cut in September.
Asian Markets Follow Suit
Asian markets mirrored the strong performance of the U.S. stock market. Japan’s Nikkei 225 hit a new record, buoyed by strong performances from companies like Yokohama Rubber and Renesas Electronics. Tokyo Electric Power also gained over 5%. Analysts state that Japan's market strength reflects ongoing reforms aimed at improving corporate governance and attracting foreign investment. In China, the Hang Seng rose 1%, while the CSI 300 advanced 0.33%, with the Shanghai Composite reaching its highest level since late 2021.
Market Optimism Driven by Inflation Data
The release of the Consumer Price Index (CPI) report served as a catalyst for the rally. Investors were concerned that President Trump’s tariff policies might lead to higher prices, but the data revealed otherwise, showing inflation remains contained. Headline CPI matched June's figures and came in softer than economists’ forecasts, providing reassurance to traders who feared prolonged elevated rates. Consequently, traders are now seeing increased odds for a rate cut in September and potential additional cuts in October and December.
Despite the impressive rally, investors are already looking ahead. Upcoming reports, such as the Producer Price Index (PPI) and retail sales data, will provide better insights into the economy’s health and expectations for the Fed's forthcoming decisions.
