The S&P 500 marked its fifth consecutive day of gains on Wednesday, continuing its upward trajectory as investors found reassurance in the latest inflation data, which bolstered expectations that the Federal Reserve might begin cutting U.S. interest rates as soon as next month. The Nasdaq Composite also notched its fifth straight day in the green, though it barely eked out a gain due to pressure from Alphabet and other major tech stocks.
Market Sentiment and Economic Data
Investor activity remained relatively subdued, with many market participants on vacation and few new catalysts driving trading. The release of U.S. consumer price data earlier in the day reinforced the belief that the Fed is on track to reduce interest rates in September. In July, U.S. consumer prices rose modestly, while the annual inflation rate dipped below 3% for the first time since early 2021. This followed softer-than-expected producer price data, which indicated that inflation continues to ease, though it has yet to hit the Fed’s 2% target.
According to the CME FedWatch Tool, the probability of a 25-basis point (bps) rate cut at the Fed’s September 17-18 meeting now stands at 55%, up from an even split between a 25-bps and a 50-bps cut before the data release.
Scott Ladner, chief investment officer at Horizon Investments, described the day as one of “markets violently going nowhere,” noting that with consumer price index (CPI) data mirroring producer price index (PPI) trends, there was little reason for traders to adjust their strategies.
Market Performance
The S&P 500 closed at 5,455.21, gaining 0.38% or 20.78 points. The Nasdaq Composite finished at 17,192.60, up just 0.03% or 4.99 points. The Dow Jones Industrial Average rose 242.75 points, or 0.61%, to close at 40,008.39.
Alphabet, the parent company of Google, saw its shares drop 2.3% following reports that the U.S. Department of Justice is considering options, including breaking up the online search giant. Other tech heavyweights had a mixed day: Tesla fell 3.1%, Meta Platforms declined 0.3%, Microsoft slipped 0.7%, and Nvidia dropped 1.7%.
Despite these pressures, a recovery in megacap and tech stocks has helped markets recover much of the ground lost earlier this month after a report showed a sharp increase in the U.S. unemployment rate in July.
Sector Highlights
Most major S&P sectors ended the day in positive territory, with financials leading the charge with a 1.3% gain. The sector was buoyed by strong performances from Progressive and Charles Schwab, both of which rose more than 4.6% following positive July performance reports. Allstate also climbed after agreeing to sell a business unit, pushing both insurers to record closing highs.
In corporate news, Kellanova surged 7.8% after candy giant Mars announced a nearly $36 billion deal to acquire the maker of Cheez-It and Pringles. Meanwhile, Cardinal Health gained 3.7% after the drug distributor raised its profit forecast for 2025.
Looking Ahead
Investors will be closely watching Thursday’s retail sales data from the Commerce Department’s Census Bureau, with concerns lingering about the overall strength of the U.S. economy. Last week, these worries pushed the Cboe Volatility Index (VIX), Wall Street’s fear gauge, to its highest level since 2020. However, on Wednesday, the VIX remained below its long-term average of 20 points for the second day in a row, closing at 16.19.
In a rapid turnaround, the VIX dropped from 35—a level associated with heightened fear—back to its long-term median of 17.6 in just seven trading sessions, marking the quickest decline ever recorded by the index, according to a Reuters analysis.