US Inflation Slows Sharply to 3.5% as Banks Report
A sharper-than-expected drop in US consumer inflation to 3.5% boosted major indices at midday, while steep declines in IBM and Citigroup highlighted underlying stock-specific risks.
US consumer prices rose 3.5% in June, down from 4.2% the previous month and well below the 3.8% consensus estimate. The core measure, which excludes food and energy, slowed to 2.6% from 2.9%, also beating expectations of a flat reading. The data pushed major indices higher at midday.
The unexpected cooling in inflation reinforces market expectations that the Federal Reserve's rate hikes have successfully restrained price pressures. For portfolio managers, the deceleration in core CPI provides concrete evidence that underlying economic momentum is normalizing without a severe demand collapse. Traders are likely to adjust their timelines for potential rate cuts, shifting allocations toward growth equities sensitive to borrowing costs.
The inflation data arrived alongside the start of second-quarter earnings season for major US lenders. Early reports from the big banks showed solid numbers. This resilience in financials is a key indicator of broader corporate health, as lenders set the tone for how elevated rates are impacting balance sheets and consumer credit.
While the broader market advanced, individual equities experienced sharp divergence. International Business Machines plummeted 23.9%, marking the session's steepest decline among major stocks. The technology and healthcare sectors also saw notable losers, with Intuitive Surgical falling 6.7% and Denali Therapeutics dropping 13.4%. Citigroup slipped 5% despite the positive banking sector backdrop. Conversely, SK hynix rallied 22.9%, driving strength in chipmakers, while NextCure surged 182.9%.
The macroeconomic backdrop sets the stage for a critical earnings week. Morgan Stanley reports on July 15, providing further insight into investment banking activity. Consumer staples will be in focus with Conagra Brands' same-day release. The following day features Taiwan Semiconductor, a key barometer for global semiconductor demand, alongside Abbott Laboratories. Nvidia added 4.1% in heavy trading, reflecting ongoing appetite for AI-related infrastructure plays ahead of the sector's major reports. Among the most actively traded names, Nu Holdings gained 1.5% while American Airlines fell 3.6%.
