Inflation cools, easing pressure on the Fed
US stocks closed higher on the back of cooler inflation figures and solid big bank earnings.
A rebound in chip shares put the Nasdaq out front, while the Dow's gains were more subdued. The Labor Department's Consumer Price Index showed inflation cooled more than analysts expected in June, largely due to abating energy price pressures amid last month's signs of progress in US-Iran peace negotiations.
US Federal Reserve Chair Kevin Warsh sat for his first congressional testimony since his confirmation, in part to lay out the central bank's plan to contain upward price pressures.
Warsh's testimony occurred while the battle for control over the Strait of Hormuz has led to ramped-up air strikes between the United States and Iran and boosted crude oil prices, reviving fears of upward price pressures.
Still, following the CPI report, financial markets were pricing in an 83.4% likelihood that the Fed will let its key interest rate stand at the conclusion of its July policy meeting, up from 58.3% on Monday. Markets expect at least one quarter-percentage-point rate hike before year-end, according to CME's FedWatch tool.
Investors welcome the softer Fed outlook
"The inflation report seems to have weakened the argument that the Fed is going to raise rates," said Chuck Carlson, chief executive at Horizon Investment Services in Hammond, Indiana. "It gives the Fed cover, for now."
"(Warsh) is saying we can bring down inflation, and that's what the people he was speaking to want to hear," Carlson added. "And maybe inflation is going to come down without having to raise rates."
Bank earnings kick off strong
Second-quarter earnings season began with five big US banks reporting solid results, buoyed by trading strength and dealmaking.
Goldman Sachs surged 9% after it surpassed second-quarter profit expectations, as dealmaking picked up pace and geopolitical uncertainties boosted its trading business.
JPMorgan Chase and Bank of America advanced 2.5% and 1.9%, respectively, after delivering consensus-beating profits. Citigroup slid 5.3% as worries over expenses overshadowed its profit beat, while Wells Fargo dropped 2.7%.
"It's a big earnings week, so we finally get to hear from corporate America," said Tom Hainlin, national investment strategist at US Bank Asset Management in Minneapolis.
"What we continue to look for from the banks is what are they seeing in terms of consumer health? So far, good news on that front."
Markets by the numbers
The Dow Jones Industrial Average rose 10.02 points, or 0.02%, to 52,508.66. The S&P 500 gained 28.55 points, or 0.38%, to 7,543.89, and the Nasdaq Composite gained 233.83 points, or 0.90%, to 26,107.01.
Among the 11 major sectors of the S&P 500, tech shares registered the biggest percentage gain, while healthcare stocks were the biggest laggards.
Advancing issues outnumbered decliners by a 1.78-to-1 ratio on the NYSE. There were 205 new highs and 108 new lows on the NYSE.
On the Nasdaq, 2,651 stocks rose and 2,103 fell as advancing issues outnumbered decliners by a 1.26-to-1 ratio.
Volume on US exchanges was 16.38 billion shares, compared with the 21.66 billion average for the full session over the last 20 trading days.
