S&P 500, Nasdaq hit record highs on rate cut hopes after soft inflation data

The S&P 500 closed at a record high of 6,445.76 on Tuesday, climbing 1.13%, while the Nasdaq Composite reached 21,681.90, up 1.39% for the session [1]. Both indices extended their rally amid a weaker-than-expected July inflation report, which reignited hopes for a Federal Reserve rate cut as soon as September [2]. The consumer price index (CPI) rose 2.7% year-over-year, slightly below the 2.8% forecast, while core CPI, excluding food and energy, climbed 3.1%, narrowly above projections [3].

The updated inflation figures significantly shifted market expectations, with the probability of a September rate cut rising from 85% to 94% [4]. Traders also increased their positioning for potential rate reductions in October and December, signaling a growing consensus for Fed easing. Analysts noted that the combination of falling interest rates and rising corporate earnings is creating favorable conditions for equities [7].

Smaller-cap stocks led the way, with the Russell 2000 surging nearly three times as much as the S&P 500 [5]. The Dow Jones Industrial Average also rose 1.1%, closing at 44,458.61 [6]. The gains were broadly supported by a market environment where investors are increasingly positioning for lower borrowing costs. Tech stocks and small-cap firms, in particular, have benefited from the shift in rate expectations, with the Nasdaq Composite hitting a new high for the 19th time this year [11].

Analysts remain divided on the sustainability of the rally. While some, like UBS, predict a cumulative 100-basis-point rate cut by year-end [9], others, including BCA Research, caution that the current momentum may not be fully supported by underlying economic fundamentals [15]. The firm emphasized that the labor market and consumer spending remain fragile and could expose broader weaknesses if growth slows too quickly [10]. Meanwhile, Wolfe Research noted that the U.S. economy could improve by fall, potentially reducing the urgency for aggressive rate cuts [9].

Investor attention is now focused on the upcoming producer price index (PPI) report and the Federal Reserve’s Jackson Hole symposium, both of which could provide further clarity on the path of monetary policy [1]. In the meantime, speculation continues to drive market moves, with investors closely watching the evolving inflation landscape and potential changes to U.S. trade policy, including the ongoing pause on higher tariffs for Chinese goods [1].

Despite cautious commentary, equity markets have remained resilient, with 21 S&P 500 stocks trading at 52-week highs [13]. The Russell 2000 and tech sector, in particular, have shown heightened sensitivity to interest rate expectations, with speculative activity fueling additional gains [14]. However, some analysts warn that a rapid economic slowdown could undermine the current optimism and challenge the durability of the rally.

Source: [1] S&P 500, Nasdaq both notch record close as inflation ... (https://www.cnbc.com/2025/08/11/stock-market-today-live-updates-.html)

[2] S&P 500 closes at record 6445, Nasdaq hits 21681 for the ... (https://www.cryptopolitan.com/sp-500-at-record-6445-nasdaq-hits-21681/)

[3] Nasdaq, S&P 500 Rally To New Record Highs Following ... (https://www.nasdaq.com/articles/nasdaq-sp-500-rally-new-record-highs-following-inflation-data)

[4] How major US stock indexes fared Tuesday, 8/12/2025 (https://www.timesunion.com/business/article/how-major-us-stock-indexes-fared-tuesday-20814600.php)

[5] S&P 500, Nasdaq end at record closing highs as moderate ... (https://www.msn.com/en-us/money/markets/s-p-500-nasdaq-end-at-record-closing-highs-as-moderate-inflation-lifts-rate-hopes/ar-AA1Kp7zA)

[6] Wall Street Today: S&P 500 and Nasdaq Comp Close at ... (https://spectrumlocalnews.com/nc/charlotte/business/2025/08/12/wall-street-august-12)

[7] Wall Street rises on hopes for lower interest rates (https://www.moomoo.com/community/feed/wall-street-today-s-p-500-and-nasdaq-comp-close-1150****5845269)