S&P 500 nears record as July inflation cools Fed hike fears

The S&P 500 climbed near its record after July core CPI rose 0.2%, giving investors a case for delayed Fed rate hikes.

July CPI steadies traders

The advance extended the index’s August gain after the inflation report matched market expectations. The Nasdaq 100 reached a one-month high as large chipmakers rose, while short-dated Treasuries outperformed longer maturities.

Money markets priced less than a 50% chance of a September Federal Reserve rate increase, according to the market-implied levels cited in the trading session. US crude settled around $83 a barrel, below the $100 level that one strategist identified as a risk for a tougher central-bank response.

Core prices match forecasts

The consumer price index excluding food and energy rose 0.2% in July from June, matching the pace traders expected. From a year earlier, the same core measure increased 2.5%, equaling the slowest annual rate since March 2021.

The report landed after a weak jobs release the prior Friday and after three Fed officials dissented on July 29 in favor of raising rates. That combination gave investors another data point for the view that the central bank can wait rather than tighten policy immediately.

Chris Zaccarelli, chief investment officer at Northlight Asset Management, framed the market reaction around the absence of renewed price pressure. "The big surprise with a report that had no surprises is that a situation where inflation isn’t reaccelerating, coupled with the most recent, weak jobs report gives the Fed more time to wait," Zaccarelli said.

Zaccarelli added that traders are not treating rate cuts as the central case in the current setup. In a market still sensitive to the possibility of higher rates, he said, data that delays or reduces the need for hikes can be viewed favorably.

Fed path depends on August

Ellen Zentner at Morgan Stanley Wealth Management said another inflation report is due before the September Fed meeting. If that release does not show a different pattern from July, officials would still be positioned to leave rates unchanged, she said.

Bret Kenwell at eToro said the latest CPI figures should give investors more confidence that peak inflation has passed, while noting that prices remain above levels policymakers would prefer. He identified a renewed move in oil above $100 as the more serious risk, since higher energy costs can filter through inflation expectations and household costs.

Seema Shah at Principal Asset Management also tied the inflation debate to energy supply risks. "With the Strait of Hormuz still shut, upside inflation risks will remain top of mind for the foreseeable future," Shah said.

If the next CPI reading resembles July’s report, the global macro effect would be a steadier US rate outlook, with less pressure on risk assets and rate-sensitive sectors. For the S&P 500, that would keep attention on earnings and technology leadership; for the wider equity market, it would support the rotation into companies most exposed to lower discount-rate assumptions.

If oil moves toward the $100 threshold cited by Kenwell or if the next inflation report accelerates, the mechanism would run through energy costs, inflation expectations and the Fed’s reaction function. That path would put pressure on high-valuation equities, weigh on chipmakers and other growth shares, and reopen the market debate over whether September policy can remain on hold.