U.S. stocks ended higher as softer June inflation data and strong bank earnings lifted sentiment despite escalating Middle East tensions. According to The Economic Times, S&P 500 gained 28.69 points, or 0.38%, to end at 7,544.03 points, while the Nasdaq Composite gained 236.48 points, or 0.91%, to 26,109.65. The Labor Department's Consumer Price Index showed inflation cooled more than analysts expected in June, largely due to abating energy price pressures amid last month's signs of progress in U.S.-Iran peace negotiations. Following the CPI report, financial markets were pricing in an 83.4% likelihood that the Fed will let its key interest rate stand at the conclusion of its July policy meeting, up from 58.3% on Monday. Markets expect at least one 25-basis-point rate hike before year-end, according to CME's FedWatch tool. The annual inflation rate in the US fell to 3.5% in June 2026, the first decline in five months, compared to 4.2% in May and below forecasts of 3.8%, as reported by Trading Economics. Energy costs increased 15.7%, below 23.5% in May, as the ceasefire between the US and Iran alleviated inflationary pressures from the energy component.
Fed rate hike expectations have increased significantly as markets await critical inflation data. According to CNBC TV18 and Reuters, traders have increased the probability of a 25-basis-point interest rate hike at the Federal Reserve's July 28-29 policy meeting to around 43%, compared with roughly 25% a week earlier. Federal Reserve Governor Christopher Waller said that policymakers were at a "crossroads" and that upcoming inflation data would play a crucial role in determining the next step. Waller noted that the central bank could not afford to ignore persistent inflation if price pressures continue to surprise on the upside, stating that several months of stronger-than-expected inflation readings would make another elevated reading difficult to dismiss as temporary noise. Following the inflation report, traders see less than a 17% chance that the Fed will raise its main interest rate at its next meeting in a couple weeks, down from the nearly 42% probability they saw the day before, according to data from CME Group. The 2-year Treasury yield fell around eight basis points as the curve bull-steepened, with Kevin Warsh keeping the hawkish script intact.
JPMorgan Chase posted a record quarterly profit of $21.2 billion, or $7.70 per share, well above analysts' expectations, with revenue climbing 28% year-on-year to $57 billion. Chief Executive Jamie Dimon said the strong performance reflected robust market activity, disciplined execution, long-term investments and prudent capital allocation. Bank of America reported net income of $9.1 billion in Q2 2026, compared to $7.2 billion, up 27%, with diluted earnings per share of $1.21 compared to $0.90, up 34%. Citi posted net income of $5.8 billion in Q2 with earnings per share at $3.15 and return on equity at 11.4%, marking its best quarterly revenue in a decade with double-digit revenue growth for the firm and in four out of five businesses. Goldman Sachs rallied over 9% after surpassing second-quarter profit expectations, recording net revenues of $20.34 billion and net earnings of $6.63 billion, with diluted earnings per common share of $20.98 and annualized return on average common shareholders' equity of 23.5%. Goldman's equities trading produced another exceptional quarter, investment-banking fees rose to $3.4 billion, and buybacks exceeded $4 billion, with the SpaceX IPO, Alphabet's capital raising and a much stronger underwriting calendar turning Goldman's capital-markets franchise into a toll road running through the busiest part of Wall Street. Mega banks and financial stocks were top performers with Goldman Sachs gaining by over 9%, JP Morgan rising 2.50% and Bank of America gaining by nearly 2%. Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs and Wells Fargo all reported fatter profits for the latest quarter than analysts expected, with their reports showing strength for their trading desks and suggesting spending by U.S. consumers remains resilient.
While investors continue to debate oil prices, geopolitics, tariffs and the consumer, the market's centre of gravity still sits firmly inside the AI trade. As reported by Investing.com, AI infrastructure companies are expected to generate nearly 60% of S&P 500 earnings growth this quarter, while NVIDIA (NASDAQ:NVDA) and Micron (NASDAQ:MU) alone account for more than 40% of that contribution. Since the rally began in late 2022, traditional seasonal patterns have repeatedly been overwhelmed by AI-driven capital spending and earnings momentum. However, this concentration creates vulnerabilities, as investors are no longer buying broad corporate America. They are buying confidence that the AI investment cycle remains intact. Ironically, investors will receive very little direct confirmation next week, with NVIDIA not reporting until late August and Micron having already reported. Instead, the semiconductor supply chain and memory-related companies will become the market's proxy for judging whether AI spending remains as powerful as investors believe. Also Read
IBM shares crashed over 25% on weaker quarterly earnings, making it the biggest loser of the day despite broader market gains. IBM's revenue stood at $17.2 billion, up 1%, while software revenue increased 5% but consultancy revenue remained flat and infrastructure revenue plunged 7%. Diluted earnings per share stood at $2.27, down 2%, with infrastructure revenue declining significantly. Arvind Krishna, Chairman, President, and Chief Executive Officer, IBM said, "While our second-quarter results are disappointing, our performance in many areas showed strength, reinforcing the conviction we have in our portfolio and strategy." Despite IBM's struggles, AI stocks like Nvidia rallied over 4%, which lifted the Wall Street sentiment overall. However, AI stocks like Micron Technology rose 4.9% and Nvidia climbed 4.1%, a significant turnaround from their previous performance when they were two of the heaviest weights on the S&P 500 after falling 4.4% and 3.5%, respectively. The recovery remained narrow, with the S&P 493 roughly unchanged while the largest technology names did most of the lifting. The market's central contradiction lies in soft CPI having bought the Fed time, but oil is already trying to steal it back, with Brent closing nearly 2% higher at $84.73/bbl.
