Stocks climbed again Wednesday as cooling inflation boosted investor hopes for a Federal Reserve rate cut next month. Futures rose across all major indexes after Tuesday’s record-breaking rally, keeping bullish momentum alive.
Futures rise as investors eye rate cuts
By early morning, U.S. stock futures pointed higher:
- S&P 500 futures: +0.2%
- Nasdaq 100 futures: +0.2%
- Dow Jones futures: +107 points (+0.2%)
These gains followed a strong Tuesday session:
- S&P 500: Closed up 1.1% at 6,445.76 (new record)
- Nasdaq Composite: Gained 1.4% to finish at 21,681.90 (also a record)
- Dow Jones Industrial Average: Rose 483 points to 44,458.61
- Russell 2000: Jumped nearly 3% as small-caps gained favor
Investors responded positively to a cooler-than-expected consumer price index (CPI) report, which eased fears that tariffs were driving up costs. As of Wednesday morning, CME’s FedWatch Tool shows a 94% probability of a September rate cut.
Inflation trends reshape market outlook
The July CPI showed a modest increase—less than analysts expected. That helped calm fears of sticky inflation and reinvigorated rate-cut optimism.
Key inflation-related developments:
- Producer Price Index (PPI) drops Thursday
- Retail sales data comes Friday
- Jackson Hole Fed meeting begins August 21
Traders now believe the Fed may pivot sooner than previously expected, especially as labor market data signals weakness.
Small-cap stocks lead as optimism grows
The Russell 2000’s nearly 3% gain shows renewed interest in smaller companies, which typically benefit from lower interest rates.
Still, not everyone buys the rally.
Warren Pies of 3Fourteen Research warned investors may be overreacting. “Seasonal buying in August is creating a false sense of a ‘summer melt-up,’” he said on CNBC. “Concerns about the labor market and growth haven’t gone away.”
Market movers: Cava crashes, CoreWeave slides
Earnings and guidance updates shook several high-profile names:
- Cava (CAVA): Shares sank over 22% after cutting full-year sales guidance. Same-store sales rose just 2.1% in Q2.
- CoreWeave (CRWV): Dropped 9% despite beating revenue expectations. Analysts raised red flags over its rising debt load and heavy capex spending.
- Circle (CRCL): Fell more than 6% after announcing a 10 million-share public offering.
Investors punished high-growth names that failed to deliver—or signaled future softness.
Crypto rallies as Ether nears all-time high
Cryptocurrencies gained ground alongside stocks:
- Ether (ETH): Rose 7% to $4,578.73, just below its 2021 record of $4,866.01
- Analysts say flows from ETFs and treasury vehicles are driving demand
Jordi Alexander of Selini Capital noted that crypto investors “rediscovered momentum” after Tuesday’s CPI release. Ethereum, in particular, is seeing surging institutional interest.
Global snapshot: China’s $11T market rebounds
China’s stock market is staging a quiet comeback:
- CSI 300 Index: Up 16% since April low
- Domestic investors, flush with savings, are fueling demand
- Beijing has taken steps to limit price wars and ease deflation fears
Despite the lack of major stimulus or trade deals, investor sentiment in China appears to be turning a corner.
What’s next for markets?
Investors will focus on Thursday’s wholesale inflation report (PPI) and Friday’s retail sales to gauge consumer strength and the Fed’s next move. The Jackson Hole Fed summit later this month could cement expectations for a rate shift.
For now, Wall Street continues to ride a wave of optimism—though some analysts warn the rally may be running ahead of reality.