U.S. equities surged to within striking distance of all-time highs after the latest Consumer Price Index data came in below consensus estimates, reigniting hopes that the Federal Reserve may begin cutting interest rates before year-end. The S&P 500 closed Thursday up 1.4%, its strongest single-day gain in six weeks.
Inflation Data Shifts the Narrative
April’s CPI rose 2.8% year-over-year, below the 3.1% forecast and down from 3.3% in March. Core CPI, which strips out volatile food and energy components, printed at 2.6%, the lowest reading since early 2024. Markets interpreted the data as a green light for a potential rate cut at the September FOMC meeting.
Sector Rotation in Focus
Technology and growth stocks led the advance, with the Nasdaq Composite gaining 1.8% on the day. Interest rate-sensitive sectors such as real estate and utilities also outperformed, reflecting expectations of cheaper borrowing costs ahead. Financials, however, lagged as banks grapple with compressed net interest margins in a lower-rate environment.
Risks Remain on the Horizon
Despite the optimism, strategists caution that a single data point does not constitute a trend. The labor market remains tight, with unemployment at 3.9%, and Fed officials have repeatedly stressed they need multiple months of encouraging inflation data before moving. Earnings season continues to test valuations at current levels.
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