Dow climbs 140 points as June inflation cools to 3.5%

Wall Street rallied Wednesday as June inflation cooled more than expected, reinforcing bets the Fed will hold rates steady.

The Dow Jones Industrial Average rose 140 points in early trading, building on gains after the Labor Department reported June consumer prices fell 0.4% from May — the largest monthly decline in four years. The annual inflation rate eased to 3.5% from 4.2% in May, below the 3.6% consensus estimate.

"This reading is very much in the camp that the inflation we've had this year is transitory," said Michael Metcalfe, head of macro strategy at State Street Markets. "Yes, gas prices went up, but nothing else did, more or less."

Core prices, which strip out volatile food and energy categories, were unchanged month over month and rose 2.6% from a year earlier, down from 2.9% in May. The benign figures suggest the gas price spike linked to the Iran conflict has not yet triggered broad-based inflation, economists said. Still, Brent crude oil climbed 4.6% to $87.13 a barrel as the U.S. and Iran each claimed control of the Strait of Hormuz, a conduit for about one-fifth of global oil shipments.

The inflation data gives Fed Chair Kevin Warsh room to maintain the central bank's current stance after policymakers left the benchmark rate at about 3.6% last month. Minutes from the June 16-17 meeting showed the Fed remains sharply divided, with roughly half of officials supporting a rate increase by year-end and the other half willing to wait for further signs that inflation is cooling. "Today's report gave some breathing room for the Federal Reserve in deciding whether and when to raise interest rates," said Kathy Bostjancic, chief economist at Nationwide Financial.

BlackRock, PayPal Lead Earnings-Driven Gains

BlackRock Inc., the world's largest asset manager, reported quarterly earnings that topped analyst expectations, sending its shares higher in early trading. The company cited strong inflows across its fixed-income and ETF platforms as investors adjusted portfolios amid the shifting rate outlook.

PayPal Holdings Inc. also gained after the payments company posted better-than-expected results, signaling resilience in consumer spending despite five years of elevated inflation. The positive earnings from both firms helped offset weakness in the technology sector.

Chip Stocks Buck the Rally

Semiconductor stocks fell even after ASML Holding NV, the Dutch supplier of chipmaking equipment, issued upbeat guidance. The divergence highlights growing concern that the artificial intelligence infrastructure buildout — while driving demand for advanced chips — is also inflating costs for memory chips and other components, prompting companies including Apple Inc., Microsoft Corp., and Dell Technologies to raise prices on laptops, tablets, and gaming consoles.

Walmart Inc. provided a counterpoint last week, announcing it was rolling back prices on thousands of items including ground beef, potato chips, toys, and clothing — a move President Donald Trump praised on social media. The retail giant's pricing strategy suggests some consumer-facing companies are betting inflation will continue to ease, even as energy costs remain volatile.

Traders will now focus on upcoming remarks from Fed officials and the next batch of corporate earnings for clues on whether the disinflation trend can sustain itself through the second half of the year. Fed Governor Christopher Waller said Monday that another hot core inflation reading would force the central bank to "consider tightening monetary policy in the near term," while New York Fed President John Williams indicated that a sustained 0.2% monthly core pace could allow the Fed to avoid hiking.

This article is for informational purposes only and does not constitute investment advice.