Record-setting Rally on Wall Street as Hopes for Inflation Relief Spark Surge in U.S. Stocks

Inflation heading in the right direction sparks record-setting rally on Wall Street

Hopes that inflation is finally heading back in the right direction swept through Wall Street on Wednesday, igniting a record-setting rally for U.S. stocks. The S&P 500 jumped 1.2% to surpass its previous high set a month and a half ago, while the Nasdaq composite added 1.4% to its own record set a day earlier. The Dow Jones Industrial Average gained 349 points, or 0.9%, to beat its all-time high set in March.

The relief came from the bond market, where Treasury yields eased, releasing some of the pressure on the stock market. Traders are now expecting the Federal Reserve to cut its main interest rate this year, leading to optimism among investors. Stocks that benefit from lower interest rates, such as homebuilders and big tech companies, led the market higher.

Real-estate stocks in the S&P 500 climbed 1.7%, while stocks of electricity companies and other utilities rose 1.4%. The dividends they pay look more attractive to investors when bond yields are lower. The optimism was fueled by a report showing a slowdown in inflation, with prices for gasoline, car insurance, and other goods rising 3.4% in April compared to a year earlier, down from March’s rate of 3.5%.

The slowdown in inflation was a relief after months of disappointing data, which had dampened expectations for a Fed rate cut. The federal funds rate is currently at its highest level in over two decades, and a cut could stimulate investment and boost the economy. However, a separate report showing no growth in retail sales in April raised concerns about consumer spending, which has been a key driver of economic growth.

Despite the positive news on inflation, a report showing manufacturing in New York state contracting more than expected tempered some of the market enthusiasm. Petco Health + Wellness surged 27.9%, while GameStop and AMC Entertainment saw losses after their recent gains. Overall, the S&P 500 rose 61.47 points to 5,308.15, the Dow added 349.89 to 39,908.00, and the Nasdaq jumped 231.21 to 16,742.39.

In the bond market, the yield on the 10-year Treasury eased to 4.34%, while traders are now predicting a nearly 95% probability of a Fed rate cut this year. Stock markets abroad were mixed, with Shanghai’s index falling 0.8% after China’s central bank left a key lending rate unchanged. Overall, the outlook for the U.S. economy remains positive, with hopes that inflation is under control and the Fed will take appropriate action to support growth.