Rate cut expectations by US Federal Reserve increase significantly after July inflation data

Major U.S. indices surged Tuesday following inflation data that met expectations, reinforcing Fed rate cut prospects for September. The S&P 500 rose 1.1% to close above 6,400 for the first time, marking a record high, while the Nasdaq Composite gained 1.4%. The Dow Jones advanced 1.1%, adding nearly 500 points to the session’s gains.

Small-cap stocks outperformed as the Russell 2000 jumped 3%, delivering its best day since May amid growing rate cut optimism. International markets also participated in the rally, with Japan’s Nikkei 225 and TOPIX, Australia’s ASX, and the MSCI All Country benchmark all reaching new highs.

The broad-based rally was fueled by July inflation data coming in line with expectations, boosting investor confidence in a Federal Reserve rate cut next month and driving widespread gains across equity markets.

The US Bureau of Labor Statistics reported July headline CPI at 2.7% year-over-year, slightly below forecasts, while core CPI (excluding food and energy) accelerated to 3.1% from June’s 2.9%. The core reading indicated that rising goods inflation is no longer being offset by easing services inflation. The mixed data reinforced market expectations for a September Fed rat e cut, with CME futures showing 94% probability priced in by traders.

Large-cap technology shares led the rally, with Meta gaining 3.5% to all-time highs following a strong Q2 report and Intel jumping over 5%.

Gold prices stabilized near $3,350, supported by subdued dollar demand and monetary easing expectations, while crude oil hovered at $63 amid position squaring ahead of geopolitical developments that could impact global supply dynamics.

Back home, market breadth remained marginally positive despite mixed performance across the broader indices yesterday.

Indian markets are poised to open with strength today following official data that revealed consumer price inflation eased more than expected in July, reaching its lowest level in over eight years. This decline was driven by continued weakness in food prices.

The Nifty continues to find support at the 24,340 level, where recent swing lows were established. On the upside, today’s peak of 24,702 will serve as the immediate resistance level to watch.

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Source: HDFC Securities Prime Research