The S&P 500 rose on Tuesday, boosted by semiconductor stocks, after June inflation data came in weaker than expected.
The broad market index rose 0.4%, while the Nasdaq Composite advanced 1%. The Dow Jones Industrial Average traded around stagnant. Shares of International Business Machines weighed on the 30-stock index, with the stock falling 24% after the firm warned that second-quarter profit would be lower than expected due to weak demand in its software and infrastructure businesses.
Semiconductor stocks recovered after a selloff in the previous session. VanEck Semiconductor ETF (SMH) traded 2% higher. Applied Materials and Teradyne rose more than 4%. Lam Research and Micron Technology rose more than 5%. STMicroelectronics rose by more than 3%, SEEbiz reports.
In June, the consumer price index fell by 0.4% compared to the previous month, bringing the annual inflation rate to 3.5%. Economists polled by Dow Jones had forecast a 0.2% decline last month and had expected the inflation rate to come in at 3.8%.
With inflation easing, expectations that the Federal Reserve will raise interest rates this year eased after the announcement. The odds that the central bank will raise interest rates at its July meeting fell to 17% from 42% a day earlier, according to CME’s FedWatch tool. However, traders still expect a hike at the September meeting, with a 63% chance the target rate will be a quarter or half a point higher.
“Tuesday’s weaker-than-expected consumer price index suggested the rise in inflation caused by the Iran war is easing, but that could be only temporary relief as tensions have intensified in recent days,” said Skyler Weinand, chief investment officer at Regan Capital. “Weaker inflation data is likely keeping the Fed on hold for now and reducing the prospect of any rate hikes, but we remind investors that almost every communication President Warsh has issued during his short tenure so far has been hawkish.”
“Warsh wants to get consumer prices under control, and the best tool the Fed has right now is to raise interest rates,” he added.
Fed Chairman Kevin Warsh testified before Congress on Tuesday, where he said “the run-up in inflation over the past five years will be a thing of the past.”
