US stocks surged on Wednesday after a new report on inflation revealed that consumer prices increased less than expected in May. The data fueled optimism as investors awaited the Federal Reserve meeting later in the day for a signal on the path of interest rates. The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average all posted gains, with the S&P 500 reaching a 27th record close of the year.
The inflation report showed a deceleration in prices for May, with both monthly and annual increases lower than economists had predicted. This unexpected data shifted market expectations for Fed rate cuts, leading to increased likelihood of a rate cut by the September meeting. The 10-Year Treasury yield fell significantly as interest rate-sensitive areas of the market saw substantial gains, with the small-cap Russell 2000 index rallying over 3.1%.
Investors closely watched the Fed meeting outcomes, particularly the updated economic projections in the “dot plot” and any comments from Fed Chair Jerome Powell. The decisions made at the meeting and projections for rate cuts for the remainder of the year could have a significant impact on market movements. The positive momentum from the inflation report and expectations for potential rate cuts dominated the market narrative throughout the trading day.
