US stocks showed gains on Tuesday after a Consumer Price Index (CPI) report indicated that inflation in June was not as severe as economists had predicted. The year-over-year headline inflation rate came in at 3.5%, lower than the FactSet consensus estimate of 3.8%. This positive inflation data led to a calming effect on Wall Street, with the S&P 500 rising by 0.2%, the Nasdaq composite climbing 0.5%, and the Dow Jones Industrial Average gaining 0.11% in early trading. Bond yields also fell, with the 10-year Treasury yield dropping to 4.57% from 4.61% after the inflation report.
However, concerns remained regarding global oil prices, which continued to jump due to worries about potential escalations between the United States and Iran. More costly oil could drive inflation higher in the future. Federal Reserve Chair Kevin Warsh was scheduled to deliver testimony on monetary policy to a Senate panel later in the day, with markets closely watching for his characterization of inflation and the economy's trajectory, especially since he is known for not providing forward guidance.
The better-than-expected CPI data contributed to an increase in small business confidence, as indicated by the NFIB Small Business Optimism Index, which rose 2.1 points in June to 97.4. Despite previous hawkish repricing of Fed rate expectations driven by rising energy costs and comments from Fed Governor Christopher Waller, the CME Group's FedWatch tool showed markets pricing in a 58.8% likelihood of the Federal Reserve maintaining current interest rates at July’s meeting. The general sentiment is that the Federal Reserve, under Chairman Warsh, may opt for a "prolonged pause" with potentially only a single rate cut by December, especially if core inflation, excluding energy costs, eases. JPMorgan Chase & Co. also reported strong second-quarter 2026 earnings, beating expectations with diluted earnings per share of $7.70 on net reported revenue of $57.35 billion, kicking off the corporate earnings season.
