Wall Street Rallies: Dow Jones Climbs Nearly 500 Points as S&P 500, Nasdaq Hit Record Highs on Cooling Inflation

U.S. stocks surged on Tuesday, August 12, as a softer-than-expected inflation report boosted expectations that the Federal Reserve could cut interest rates as early as next month.

At the close, the S&P 500 rose 1.13% to a record 6,445.76 points, while the Nasdaq Composite gained 1.39% to an all-time high of 21,681.90 points. The Dow Jones Industrial Average jumped 483.52 points, or 1.10%, to finish at 44,458.61.

Cooling inflation fuels rate-cut optimism
Data released Tuesday showed the U.S. Consumer Price Index (CPI) rose 2.7% in July from a year earlier, slightly below the 2.8% increase forecast by Dow Jones. Core CPI, which excludes volatile food and energy prices, was up 3.1%, marginally above the 3% estimate.

The figures eased investor concerns that President Donald Trump’s tariff policies could stoke higher inflation. According to the CME FedWatch tool, markets now assign a 94% probability that the Fed will lower rates in September, up from 85% prior to the data release. Expectations for additional cuts in October and December 2025 also increased.

Small-cap stocks lead the charge
Small-cap shares — seen as prime beneficiaries of lower short-term borrowing costs — outpaced the broader market, with the Russell 2000 posting gains nearly three times that of the S&P 500.

Investors also monitored trade developments. On August 11, President Trump announced a 90-day extension of the pause on planned tariff hikes for Chinese goods — a move viewed as easing import cost pressures in the near term.

Markets eye PPI data and Fed signals
Attention will now turn to the Producer Price Index (PPI) report due August 14, which will offer further insight into wholesale inflation trends. Both CPI and PPI figures will be closely analyzed ahead of the Fed’s annual Jackson Hole symposium later this month and its September 2025 policy meeting.