AI Rally Amid Inflation Relief: Why Did the Dow Only Dip Slightly?

On the 12th local time, the New York markets closed mixed, buoyed by confirmation of easing inflation and an AI-driven earnings rally. The S&P 500 rose 0.3% to recover near its record high, and the Nasdaq gained 0.5%. In contrast, the Dow Jones Industrial Average, which has a larger weighting in economically sensitive large-cap stocks, edged down 0.04%.

The primary catalyst for market movement was the July Consumer Price Index (CPI). The CPI increased 0.1% month-over-month and rose 3.4% year-over-year, exactly in line with market expectations, marking a slight slowdown from June’s 3.5%. This “not as bad as expected” assessment lowered the likelihood of a Fed rate hike in September, and fed funds futures priced in a higher probability of a pause. Consequently, the 10-year Treasury yield dipped from 4.70% to 4.68%, alleviating valuation pressure on growth stocks.

On the corporate front, AI infrastructure–related results were the key catalyst. Server maker Super Micro Computer and cloud AI company CoreWeave delivered earnings and guidance well above market estimates, each surging roughly 19%, while Nvidia climbed 3%, driving the S&P 500’s advance. Conversely, homebuilders and some domestically focused cyclical stocks underperformed amid persistent high-rate headwinds. Despite tensions in the Middle East and the fallout from the Iran conflict, Brent crude oil inched up just 0.1% to $88.98 a barrel, a modest rise that eased concerns of renewed commodity-driven inflation.

Investors are now eyeing the upcoming Producer Price Index (PPI) report and weekly initial jobless claims, both due on the 13th, as the next potential market inflection points.