U.S. stocks ended Tuesday's session in positive territory after weaker-than-expected June inflation data boosted investor confidence and fueled a strong rebound in semiconductor shares.
The S&P 500 gained 0.38% to close at 7,543.59, while the Nasdaq Composite climbed 0.90% to 26,107.01, supported by gains in technology stocks. The Dow Jones Industrial Average edged up 9.63 points (0.02%) to finish at 52,508.27.
The Dow's gains were limited by a sharp decline in IBM, whose shares plunged 25% after the company warned that second-quarter profits would fall short of expectations due to weaker demand in its software and infrastructure businesses.
Semiconductor stocks staged a strong recovery following Monday's sell-off. The VanEck Semiconductor ETF (SMH) rose 2.5%, while Applied Materials and Teradyne advanced more than 3% each. Lam Research and Micron Technology gained around 5%, and STMicroelectronics added over 2%.
Market sentiment improved after June's Consumer Price Index (CPI) surprised to the downside. Inflation fell 0.4% from the previous month, bringing the annual inflation rate down to 3.5%, well below economists' expectations of a 0.2% monthly decline and 3.8% annual inflation.
The softer inflation report reduced expectations of an immediate Federal Reserve rate hike. According to the CME FedWatch Tool, the probability of a July rate increase dropped to 17% from 42% a day earlier. However, markets still see a strong possibility of a rate hike at the Fed's September meeting.
During testimony before Congress, Fed Chairman Kevin Warsh stated that the inflation surge experienced over the past five years is likely coming to an end, reinforcing optimism that price pressures are easing.
Meanwhile, oil prices remained elevated despite retreating from intraday highs. Investors continued to monitor developments in the Middle East after President Donald Trump withdrew his proposal to impose a 20% transit fee on ships passing through the Strait of Hormuz. However, fresh U.S. strikes on Iran kept energy markets supported. WTI crude settled above $79 per barrel, while Brent crude closed above $84 per barrel.
In the financial sector, major banks posted solid gains following strong quarterly earnings. Goldman Sachs surged 9% after reporting better-than-expected results, while JPMorgan Chase and Bank of America each advanced around 2% after releasing their second-quarter earnings.
