U.S. stocks climbed on Tuesday after June inflation data came in cooler than expected, easing fears of an imminent Federal Reserve rate hike. The S&P 500 rose 0.5%, the NASDAQ Composite added 1%, and the Dow Jones Industrial Average gained roughly 86 points, or 0.2%. However, a steep drop in IBM shares and rising oil prices capped broader gains.
June Inflation Data Boosts Market Sentiment
The Consumer Price Index fell 0.4% in June from the prior month, bringing the annual inflation rate down to 3.5% from 4.2% in May. Economists had anticipated a 0.2% monthly decline and a 3.8% annual rate. The softer data reduced concerns that rising energy costs would push prices higher, and Treasury yields fell in response, lifting technology and housing-related stocks. Builders FirstSource and Lennar both gained as borrowing costs eased.
Traders also scaled back bets on a July rate increase. According to CME FedWatch data, the probability of a hike dropped to 17% from 42% the previous day. Markets still see a higher chance of tighter policy at the September meeting.
Bank Earnings Lift Financial Sector
Major banks kicked off second-quarter earnings season with stronger-than-expected profits. Goldman Sachs rose after beating estimates, driven by dealmaking and equities trading. JPMorgan Chase, Citigroup, and Bank of America also gained on higher quarterly earnings. Wells Fargo traded lower despite reporting profit above expectations. The broader S&P 500 financial sector moved higher, with most major sectors posting gains during early trading.
Investors are watching earnings reports for insights into consumer spending, business activity, and credit conditions. The reports showed steady card spending and stronger trading revenue, along with fresh data on loan demand.
IBM Plunge Weighs on Dow
IBM shares tumbled about 24% after the company warned that second-quarter revenue and profit would miss expectations due to weak demand in software and infrastructure. The decline pressured the Dow and dragged down other software stocks, including Oracle, ServiceNow, and Accenture. CEO Arvind Krishna acknowledged that the company failed to close several large deals on schedule, stating, “We did not adapt and move quickly enough,” while pointing to weaker execution across key businesses.
Oil Prices Rise Amid Geopolitical Tensions
Oil prices climbed as tensions between the United States and Iran escalated. U.S. crude traded above $80 per barrel, and Brent crude moved above $85 after President Donald Trump announced plans to restore a blockade on Iranian shipping through the Strait of Hormuz. The move raised concerns about global energy supplies. Higher fuel costs could slow the recent decline in inflation and maintain pressure on the Federal Reserve.
Skyler Weinand of Regan Capital noted that the inflation surge linked to the conflict may be fading but warned that the relief “may just be temporary” as regional tensions increase.
Chip Stocks Rebound After Monday’s Losses
Semiconductor shares recovered after heavy selling in the previous session. The VanEck Semiconductor ETF rose nearly 2%, and the Philadelphia Semiconductor Index gained more than 3%. Applied Materials, Teradyne, Lam Research, Micron Technology, and STMicroelectronics all moved higher. NVIDIA also gained after falling sharply on Monday. The rebound helped the NASDAQ recover part of its previous decline, while investors continued to watch valuations in the volatile AI sector.
Fed Chair Kevin Warsh prepared to testify before Congress later Tuesday, reiterating that returning inflation to the central bank’s 2% target remains a priority. He did not provide a direct signal about the Fed’s next rate decision.
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