S&P 500 Stays Near Records After Mild July Inflation Report

Wall Street got the inflation report it wanted Wednesday morning and celebrated for about half an hour. Then it dropped back a bit.

The Nasdaq Composite (NASDAQINDEX: ^IXIC) index is up 0.44% as of 12:16 p.m. ET, the S&P 500 (SNPINDEX: ^GSPC) has added 0.23%, and the Dow Jones Industrial Average (DJINDICES: ^DJI) gained 0.09%.

Those meek numbers understate the drama, though. All three indexes opened well above where they sit now, with the Nasdaq briefly over 1%. Relief rallies don't always have staying power.

^IXIC data by YCharts

July inflation cools as memory chip stocks rally

The July Consumer Price Index (CPI) rose 0.1%, exactly what economists expected. The soft uptick followed a 0.4% drop in June, the first monthly decline in six years. Annual inflation eased to 3.4% from 3.5%. Core CPI, which strips out food and energy, gained 0.2% for the month and 2.5% over the past year.

Shelter drove about two-thirds of the monthly increase. At the same time, hotel and motel rates fell 3.3%, which the Labor Department attributes to the end of the FIFA World Cup. Gasoline fell 2.9% for a second straight monthly decline. Market watchers now put the odds of a September rate hike near 40%.

Image source: Getty Images.

Memory chips are the day's standout. SK Hynix (NASDAQ: SKHY) jumped 7.2% and Micron Technology (NASDAQ: MU) rose 6.5%, both on strengthening demand forecasts for the high-bandwidth memory used in AI accelerators. Yesterday, the market couldn't decide whether to believe Micron's forecast of a chip shortage or Nvidia's (NASDAQ: NVDA) reported plan to use less memory. Today it picked a side.

Speaking of Nvidia, the stock rose 2.7%, adding roughly $145 billion in market value. The massive chip designer was the biggest single contribution to both the S&P 500 and the Nasdaq. Nvidia's gain was driven by Super Micro Computer's (NASDAQ: SMCI) Q4 2026 report, which more than doubled Wall Street's earnings estimates and signaled continued demand for AI servers. Super Micro's stock soared 17% and many chipmakers tagged along for a calmer ride.

Space Exploration Technologies (NASDAQ: SPCX) climbed 6.5%, recovering yesterday's decline and adding 0.22 points to the Nasdaq. Norway's enormous Sovereign Wealth Fund disclosed a 0.05% allocation in SpaceX while CEO Elon Musk highlighted the company's soaring AI revenues in a video posted on X.

The Dow had its own leading score changers, as usual. Microsoft (NASDAQ: MSFT) fell 2.1%, costing the Dow about 69 points. Caterpillar (NYSE: CAT) rose 2.5% for roughly 123 index points, while Home Depot (NYSE: HD) fell 2% and cost about 43 points.

Two reports, one changed conversation

Last Friday brought a surprise loss of 23,000 July jobs, plus revisions erasing 103,000 more from May and June. Today, inflation refused to accelerate. Together, they make a September hike less likely, though economists caution that August data arrives before the Fed's Sept. 15-16 meeting.

Oil prices could also throw a spanner in the works, depending on how negotiations in the Iranian conflict work out. Today, President Trump claimed "total control" over the Strait of Hormuz. The oil market, which votes with money rather than adjectives, barely budged.

The indexes gave back most of their initial pop, which suggests the CPI result was largely priced in. That's a reasonable outcome for a report that landed exactly on consensus, well before the opening bell.

Inflation reports arrive twelve times a year and are largely forgotten by the next one. Memory chip shortages can run for years, and that's the story more directly affecting investor portfolios.

Anders Bylund has positions in Micron Technology and Nvidia. The Motley Fool has positions in and recommends Caterpillar, Home Depot, Micron Technology, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.