NEW YORK MARKET CLOSE: Soft inflation boosts stocks despite oil gains

(AWP Alliance News) - Stocks closed higher on Tuesday as weaker-than-expected inflation figures saw interest rate bets pared helping offset concerns caused by higher oil prices.

The Dow Jones Industrial Average closed up slightly at 52,508.27. The S&P 500 rose 28.25 points, 0.4%, to 7,543.59. The Nasdaq Composite ended 233.83 points higher, 0.9%, at 26,107.01.

According to the US Bureau of Labor Statistics, the consumer price index fell 0.4% in June from May on a seasonally adjusted basis, after rising 0.5% the previous month. The decline, the steepest since prices fell 0.8% in April 2020, was larger than the 0.1% drop expected by the FXStreet-cited consensus.

Annual consumer price inflation slowed to 3.5% in June from 4.2% in May, undershooting the FXStreet-cited consensus, which had expected inflation to ease to 3.8%.

The index for all items less food and energy was unchanged on the month after rising 0.2% in May, undershooting expectations for a 0.2% increase.

On an annual basis, inflation not including food and energy eased to 2.6% in June from 2.9% in May, beating expectations for a 2.8% reading.

Kathleen Brooks, research director at XTB said the report "drastically reduces" the chance of a rate cut at this month's Federal Open Market Committee meeting.

"There is now a 15% chance of a rate hike from the Fed on the 31st July, compared to a 40% chance before the CPI reading," she pointed out.

Rate hike expectations had been building in recent days, reflecting the re-escalation of the Middle East conflict, the stalling of shipping through the Strait of Hormuz and the move higher in oil and natural gas prices.

On Monday, Federal Reserve Governor, Christopher Waller, said that if the inflation print was hotter than expected, then he would vote for a rate hike.

"However, this downside surprise suggests that Waller and others at the Fed may prefer to extend the pause on rates rather than rush into hikes when core inflation is slowing," Brooks suggested.

New Federal Reserve Chair Kevin Warsh told Congress that the Fed's "number one objective is to get monetary policy right" and to make sure the "inflation surge of the last five years will be a thing of the past."

He said the US central bank has "no tolerance for persistently elevated inflation" and a "resolute commitment to restoring price stability."

The yield on the 10-year US Treasury narrowed to 4.58% on Tuesday from 4.62% on Monday, while the 30-year yield eased to 5.09% from 5.10%.

Against the dollar, the euro was at USD1.1421 on Tuesday, up from USD1.1384 on Monday. Sterling rose to USD1.3389 from USD1.3354. Against the yen, the dollar fell to JPY162.20 from JPY162.43.

Oil prices surged once more as tensions in the Middle East intensified. Iran's Islamic Revolutionary Guard Corps said it had struck two UAE tankers in the Strait of Hormuz, while the US carried out a third consecutive night of strikes on Iranian targets.

The escalation followed US President Donald Trump's announcement on Monday that Washington was reinstating a naval blockade of Iranian ports and would impose a 20% charge on all cargo shipped through the Strait of Hormuz.

But on Tuesday, Trump said he was scrapping the planned levy, and replacing the fee with trade deals with Gulf allies.

A barrel of Brent was quoted at USD85.21 late Tuesday, up from USD82.91 on Monday. West Texas Intermediate climbed to USD79.68 from USD77.66.

"Investors feel like they've hit rewind on a movie they didn't enjoy first time round," commented AJ Bell Head of Markets Dan Coatsworth.

US banks were in the spotlight after second quarter results which saw Goldman Sachs shares rise 9.0% and JPMorgan climb 2.5% after both beat expectations.

Goldman Sachs said the increased earnings compared with the previous year reflected "significantly higher net revenues" in Global Banking & Markets, while JPMorgan Chase highlighted a 30% year-on-year increase in investment banking fees.

JPMorgan Chair & Chief Executive Jamie Dimon said the US economy has demonstrated "notable resiliency" this year, with stronger business investment and hiring, supported by AI investment, fiscal stimulus and the benefits of more efficient regulation."

"However, several risks are shifting below the surface like tectonic plates," he added.

Bank of America was also in the green up 1.8%, but Citigroup fell 5.3% and Wells Fargo shed 2.7% after earnings.

Citigroup spooked investors as it maintained full-year guidance which analysts suggested implied a slow down in the second half of 2026.

In its second quarter, and for the first half of 2026, Citigroup reported a 13% return on common tangible equity, a level that the bank is only expecting to reach in 2027 or 2028.

But despite this, the New York-based investment bank and financial services company said it was keeping its 10% to ?11% RoTCE target for the full-year.

Wells Fargo analyst Mike Mayo pointed out that 13% RoTCE in the first half of 2026 implies 9% in the second half given the unchanged guidance.

"I think what the stock market's saying right now, I think what we're hearing is that you're guiding for a much worse second half of the year than the first half, and that may or may not be your intention," the analyst commented on the bank's earnings call.

IBM was the big loser on Wall Street plunging 25% as it warned of an unexpected "performance shortfall" in its Software and Infrastructure divisions and a narrower profit margin.

The Armonk, New York-based technology firm released preliminary results for the second quarter, and said revenue was up 1% at USD17.2 billion, below Visible Alpha consensus of USD17.83 billion, with operating earnings per share of USD2.93 below USD2.98 consensus.

"We believe the mainframe shortfall reflects client demand re-prioritization toward near-term server and other hardware purchases given surging memory and component prices, a dynamic consistent with what peers such as Dell and HP have cited. This reprioritization also drove a shortfall in Transaction Processing because of perpetual licenses tied to new mainframe purchases," said Goldman Sachs analyst James Schneider.

Gold declined to USD4,004.22 an ounce late Tuesday, from USD4,004.22 on Monday.

In Europe, London's FTSE 100 closed up 0.3%, the CAC 40 in Paris rose slightly, and the DAX 40 in Frankfurt firmed 0.1%.

In China, the Shanghai Composite ended up 1.4%. The Hang Seng rose 0.5% in Hong Kong. The Nikkei 225 in Tokyo ended up 0.7%. The S&P/ASX 200 ended flat.

Wednesday's global economic calendar has a industrial production, retail sales and GDP data from China overnight, an interest rate decision in Canada and the Federal Reserve's Beige Book.

Wednesday's corporate calendar has second quarter results from investment bank Morgan Stanley and pharmaceuticals firm Johnson & Johnson.

By Jeremy Cutler, Alliance News reporter

Comments and questions to newsroom [at] alliancenews.com

Copyright 2026 Alliance News Ltd. All Rights Reserved.