US stocks pushed modestly higher on Wednesday as traders parsed the latest Consumer Price Index (CPI) report, which showed inflation continuing its gradual descent toward the Federal Reserve’s 2% target. The Dow Jones Industrial Average (^DJI) closed just below the flat line, while the S&P 500 (^GSPC) edged up 0.3% and the tech-heavy Nasdaq Composite (^IXIC) gained roughly 0.5%.
July CPI: A Cooler Print, But Still Hot
The Bureau of Labor Statistics reported that headline CPI rose 3.4% year-over-year in July, matching the consensus estimate and down slightly from June’s 3.5% reading. On a monthly basis, prices rose 0.1%, in line with forecasts and down from a surprise 0.4% decline in June. Core CPI, which strips out volatile food and energy components, came in at 2.5% annually and 0.2% monthly.
Despite the cooling trend, inflation remains stubbornly above the Fed’s 2% objective, leaving policymakers divided heading into the September Federal Open Market Committee (FOMC) meeting. Following Wednesday’s data release, traders shifted their bets, with markets now pricing in roughly a 55% probability that the Fed will hold rates steady in September, compared with a roughly 50-50 split the previous day.
Geopolitical Wildcard: The Strait of Hormuz
Energy prices and Treasury yields remain elevated as US-Iran tensions continue to simmer. Negotiations to reopen the Strait of Hormuz are deadlocked, and the US enforced its blockade by firing on a Panama-flagged ship attempting to cross the Gulf of Oman on Tuesday. That action lifted Brent crude futures (BZ=F) to close to $90 per barrel, injecting additional uncertainty into the inflation outlook.
Energy Secretary Chris Wright claimed on X that total Arabian Gulf energy exports, including both shipping and pipelines, are now averaging approximately 15 million barrels per day. However, data and ship-tracking service Kpler found just 14 ship crossings on Tuesday, far below pre-conflict levels of roughly 120 vessels per day — a stark contrast that has raised questions about the US’s stated control over the critical waterway.
AI Infrastructure Stocks Power the Nasdaq
Much of the day’s equity strength came from AI infrastructure plays. Supermicro (SMCI) jumped more than 14% after beating earnings expectations and issuing strong forward guidance. CoreWeave (CRWV) soared 18% as revenue doubled year-over-year, with CEO Michael Intrator calling it “an important inflection point.” Nebius Group (NBIS) surged 20% after reporting AI cloud revenue growth of 514% year-over-year to $575 million.
Peers Applied Digital (APLD) and IREN (IREN) also advanced, while the memory complex rallied on the back of Micron (MU) and SK Hynix (SKHY). Cava (CAVA) rounded out the double-digit gainers with a 12% pop after comparable sales rose 9% and restaurant traffic climbed 5.3%.
Earnings Calendar and Analyst Calls
Several heavyweights were on the docket, with Cisco Systems (CSCO), Coherent Corp. (COHR), and Cerebras Systems (CBRS) all reporting after the bell. Bank of America raised its price target on Target (TGT) to $124 from $110, though it maintained an Underweight rating, citing concerns about the pace of EPS revisions. Wendy’s (WEN) jumped 14% on a Financial Times report that Trian Fund Management, Nelson Peltz’s hedge fund, is preparing a take-private bid.
What the Fed Is Watching
Fed Governor Lisa Cook, who favored holding rates steady at the July meeting, noted last week that she is “prepared to act” if inflation fails to cool further. The FOMC’s majority — including Chairman Kevin Warsh and Governors Michelle Bowman, Michael Barr, Jay Powell, Chris Waller, and Vice Chair Philip Jefferson — appears comfortable holding rates steady for now. However, July’s weak jobs report, which showed the economy lost 23,000 jobs, has added a labor-market dimension to the Fed’s calculus.
With the September meeting now in sharper focus, markets will be watching upcoming data on consumer spending, wages, and energy prices for confirmation that disinflation is on track.
Frequently Asked Questions
1. Will the Federal Reserve cut or hold interest rates in September 2026?
Based on current market pricing, the Federal Reserve is most likely to hold interest rates steady at its September FOMC meeting. Following the July CPI report showing inflation cooling to 3.4%, traders are pricing in roughly a 55% probability of a hold. A rate cut appears unlikely until the Fed sees clearer evidence that inflation is sustainably returning to its 2% target.
2. Why did the stock market go up when inflation is still above the Fed’s target?
Markets reacted positively because the inflation data came in line with expectations rather than surprising to the upside. This removed some uncertainty about the Fed’s path and gave investors confidence that the disinflation trend remains intact. Additionally, strong AI infrastructure earnings from companies like CoreWeave, Nebius, and Supermicro provided a significant tailwind for tech-heavy indices like the Nasdaq.
3. How do Middle East tensions affect US stock markets and inflation?
Ongoing tensions in the Strait of Hormuz can drive oil prices higher, which raises transportation and production costs across the economy. Higher energy costs can feed into broader inflation, potentially complicating the Fed’s efforts to bring prices back to its 2% target. The blockade has already pushed Brent crude to nearly $90 per barrel, adding an upward pressure risk to the inflation outlook.
