Stocks Rebound as Softer U.S. Inflation Eases Rate Fears Despite Rising Oil Tensions

Wall Street gained after inflation data came in below expectations, boosting hopes of fewer Fed rate hikes, while Middle East tensions pushed oil prices higher. Tech stocks and strong bank earnings also supported markets.

Stocks rose Tuesday after a report showed U.S. inflation was not as bad last month as economists expected. That was even though oil prices continued to climb on worries that the United States and Iran may return to all-out war.

The S&P 500 added 0.4% to recover some of its 0.8% loss from the prior day. The Dow Jones Industrial Average added 9 points or less than 0.1% and the Nasdaq composite climbed 0.9%.

Fighting in the Middle East is threatening to close the Strait of Hormuz, the narrow waterway that oil tankers use to exit the Persian Gulf and deliver crude to customers worldwide. The price for a barrel of Brent crude, the international standard, briefly topped $87 in the morning. Following its leap of nearly 10% on Monday, it got back to where it was before the United States and Iran signed their interim deal to halt their fighting in the middle of last month. Brent?s price later pared its gain and settled at $84.73, up 1.7% from Monday?s settlement.

Stocks got help from easing yields in the bond market which fell after a report said U.S. consumers had to pay prices for gasoline, food and other costs of living that were 3.5% higher last month than a year earlier. That wasn?t as bad as May?s 4.2% inflation rate or the 3.9% that economists expected for June. Less bad inflation takes pressure off the Federal Reserve which is considering raising interest rates. Higher rates would keep a lid on inflation but they also slow the economy and hurt prices for all kinds of investments.

Following the inflation report, traders see less than a 17% chance that the Fed will raise its main interest rate at its next meeting in a couple weeks. That?s down from the nearly 42% probability they saw the day before, according to data from CME Group. Rebounds for big, influential tech stocks also helped steady the market. They?ve swung sharply in recent weeks on worries that they shot too high in the euphoria around artificial-intelligence technology and that the voracious demand for AI chips and data centers may fade if they don?t produce the promised profits and productivity.

Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs and Wells Fargo all on Tuesday reported fatter profits for the latest quarter than analysts expected. Their reports showed strength for their trading desks and suggested spending by U.S. consumers remains resilient. Their stocks mostly rose following the results. Goldman Sachs jumped 9% but Citigroup fell 5.3%. Micron Technology rose 4.9%, and Nvidia climbed 4.1%. A day before, they were two of the heaviest weights on the S&P 500 after falling 4.4% and 3.5%, respectively.

In stock markets abroad, indexes inched higher in Europe following a stronger finish in Asia. Japan?s Nikkei 225 added 0.7% as SoftBank Group Corp. rose 3.3%. It?s a big investor in AI, and Chairman Masayoshi Son gave a speech in Tokyo where he derided the idea that there is a bubble in investments in capacity for AI. Stocks rose 1.4% in Shanghai after the government reported China?s exports jumped 27% in June from a year earlier as AI drove strong demand for computer chips and other technology.

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