The stock market surged higher on Wednesday after a better-than- expected inflation report for July, boosting investor sentiment as consumer prices fell for the first time in months.
Analysts say the Fed has plenty of cover to slow the pace of rate hikes.
The S&P 500 gained 1.5% and the tech-laden Nasdaq was up 2%.
Consumer prices rose 8.5% in the 12 months ending in July, less than the 8.7% expected by economists and down from 9.1% in June.
The data shows that the decline in gasoline prices helped offset the increase in food and shelter costs.
The latest data gave investors hope that inflation may have peaked, which should give the Federal Reserve more time to slow the pace of monetary policy tightening.
The majority of traders are pricing in a 50 basis point rate hike by the Federal Reserve in September, rather than a third 75-basis-point increase in a row.
One month doesn't make a trend, and if future months' data shows a decrease in inflation, it will help markets see the end.
Jamie Cox is a managing partner at Harris Financial Group. The good news is that it reduces the need for a recession to break the back of inflation.
The reaction to the report is very bullish. Treasuries are surging, yields are dropping, and Fed tightening forecasts are falling, but keep in mind these have been more volatile than early-stage tech stocks in the last few weeks.
It was the first time in months that inflation went up in July.
The experts are warning of a bear market rally.
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