US stocks advanced on Tuesday after a softer-than-expected US inflation report boosted investor sentiment and fueled hopes that the Federal Reserve may keep interest rates unchanged at its upcoming meeting.
Gains were led by semiconductor stocks and supported by strong earnings from major US banks, while IBM weighed on the Dow Jones Industrial Average after issuing a weak profit outlook.
The S&P 500 rose 0.38% to close at 7,544.03, while the Nasdaq Composite gained 0.91% to finish at 26,109.65.
The Dow Jones Industrial Average edged up 0.05% to 52,527.56.
Softer inflation eases Fed rate concerns
The Labor Department reported that the Consumer Price Index (CPI) fell 0.4% in June from the previous month, while annual inflation slowed to 3.5%.
Economists had expected a smaller monthly decline of 0.2% and annual inflation of 3.8%.
The data prompted investors to scale back expectations for a near-term interest rate increase.
According to CME’s FedWatch Tool, markets priced in an 83.4% probability that the Federal Reserve would leave rates unchanged at its July meeting, up from 58.3% a day earlier.
However, traders still expect at least one 25-basis-point rate hike before the end of the year.
Federal Reserve Chair Kevin Warsh also delivered his first congressional testimony since taking office, saying that “the inflation surge of the last five years will be a thing of the past.”
Chip stocks rebound as IBM tumbles
Technology stocks led Tuesday’s gains after semiconductor shares rebounded from the previous session’s sharp sell-off.
The VanEck Semiconductor ETF climbed around 2%, while Applied Materials and Teradyne each gained about 4%.
Lam Research and Micron Technology rose roughly 5%, and STMicroelectronics advanced more than 2%.
IBM, however, moved sharply lower after warning that second-quarter profits would come in below expectations because of weak demand in its software and infrastructure businesses.
Shares of the technology company fell about 25%, making it the biggest drag on the Dow.
Bank earnings offset Middle East concerns
The second-quarter earnings season began with major US banks reporting results that largely exceeded expectations.
Goldman Sachs surged 9% after posting stronger-than-expected profit, supported by robust trading revenue and improved dealmaking activity.
JPMorgan Chase and Bank of America each gained more than 2% after reporting earnings above analyst estimates.
Citigroup and Wells Fargo, however, declined despite their quarterly results as investors focused on expenses and other business trends.
Meanwhile, geopolitical tensions remained in focus. Oil prices retreated from their session highs after President Donald Trump withdrew his proposal to impose a 20% fee on ships transiting the Strait of Hormuz.
However, crude prices remained elevated after renewed US strikes on Iran.
US crude settled up about 1.5% above $79 per barrel, while Brent crude rose 1.7% to trade above $84 per barrel, reflecting continued concerns over energy supplies despite easing inflation pressures.
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