Major U.S. indices, S&P 500 and Nasdaq, close at record-breaking levels amid optimistic anticipation of interest rate adjustments, fueled by moderate inflation.
Published on August 13, 2025
In a significant development for the US stock market, bank stocks saw a notable surge on Tuesday, with the S&P 500 Banks index up 2.1 per cent. Analysts attributed this rally to the prospect of a steepening yield curve, which could potentially boost bank earnings.
The broader market also experienced gains, with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all posting positive performances. The Russell 2000 index, which tracks small-cap companies, advanced almost 3 per cent.
The July 2025 inflation data, showing a 0.2% month-on-month rise in the Consumer Price Index (CPI) and stable year-on-year inflation at 2.7%, helped ease market fears about rising inflation pressures. This data reinforced expectations that the Federal Reserve might reduce interest rates to support economic growth.
Although core inflation remained above the Fed's 2% target at 3.1%, the relatively modest inflation increase and falling energy prices have strengthened the likelihood of a September rate cut. Rate futures showed traders are giving an 88.8% chance that the Fed could lower rates by about 25 basis points in September.
The quality of economic data remains a concern due to recent downward revisions to previous months' nonfarm payrolls counts. However, the July inflation data has contributed to an increasing probability—now estimated by markets and analysts to be between 80% and 95%—that the Federal Open Market Committee (FOMC) will cut interest rates at their September 16-17 meeting.
Inflows into US stocks last week were the largest in two years, as per BofA Global Research data. Notable movers included Intel Corp, which climbed 5.6% after President Trump praised its CEO, Lip-Bu Tan, following a meeting on Monday. Alphabet shares rose 1.2% due to a $34.5 billion cash offer to buy the company's Chrome browser.
However, Cardinal Health dropped 7 per cent after announcing it will buy healthcare management firm Solaris for $1.9 billion.
On the NYSE, advancing issues outnumbered decliners by a 4.26-to-1 ratio, with 484 new highs and 60 new lows. On the Nasdaq, the ratio was 2.69-to-1, with 104 new highs and 96 new lows. Volume on US exchanges was 16.40 billion shares, compared with the 18.3 billion average for the full session over the last 20 trading days.
Katherine Bordlemay, co-head of client portfolio management, fundamental equities at Goldman Sachs Asset Management, said the CPI data is supportive for equities overall. An index tracking airline stocks surged 8.87 per cent, its biggest one-day rise in over a month after data showed airfares rose 4 per cent in July.
In summary, the July inflation data softened concerns about persistent inflation and strengthened market and Fed expectations for a September rate cut, although some caution remains given sticky core inflation and upcoming labor market data the Fed would consider before finalizing their decision. The S&P 500 and the Nasdaq scored record closing highs on Tuesday.
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