Stocks rallied Wednesday as Wall Street breathed a sigh of relief over a lower-than-expected CPI reading for July that showed inflation eased to an annual 8.5% last month.
The benchmark S&P 500 jumped 2.1% while the Dow Jones Industrial Average gained 535 points, or about 1.6%, and the tech-heavy Nasdaq Composite surged 2.9%.
July's CPI report showed prices moderated last month, edging lower for the first time since early 2021 in a hopeful sign for investors that Federal Reserve officials may scale back the magnitude of interest rate hikes.
Data from the Bureau of Labor Statistics indicated prices paid by consumers rose 8.5% last month over the year, reflecting a moderation from June's 40-year high of 9.1%. Consensus economists were expecting last month's reading to show an 8.7% increase, according to estimates compiled by Bloomberg.
In bond markets, the improvement in consumer price data led Treasury yields to slide as investors scaled back bets on the extent of monetary tightening policymakers are expected to do. The 10-year Treasury fell roughly 4 basis points to yield 2.76%, and the two-year benchmark Treasury note plunged 12 basis points to 3.17%.
"This is a step in the right direction but keep in mind we have many miles ahead of us before inflation normalizes," Mike Loewengart, managing director of investment strategy at Morgan Stanley's E*TRADE said in an emailed note. "One month’s data point does not make a trend, however, so cautious optimism is likely the name of the game."
A downward trend in gasoline prices over more than 50 consecutive days provided some relief to U.S. consumers last month after record energy costs pushed inflation to the highest reading of the cycle in June, but inflationary pressures remained strong across other components of the report.
Core CPI, which excludes the volatile food and energy components of the report, remained firm in the latest reading, climbing at an annual 5.9%, unchanged from June's figure.
Elsewhere on investors' radars, Elon Musk dumped $6.9 billion worth of Tesla (TSLA) stock late Tuesday after the electric carmaker’s Chief Executive Officer said he was done selling shares of the company. Musk said in a tweet that he wanted to avoid an emergency sale of Tesla stock in the event he’s forced to proceed with his deal to acquire Twitter (TWTR).
On the earnings front, shares of Coinbase (COIN) rose 4%, buoyed by the rally across broader markets even after the cryptocurrency exchange reported second-quarter earnings Tuesday afternoon that came short of Wall Street estimates and said user growth slowed and is set to fall further the rest of this year.
Meanwhile, Roblox (RBLX) took a hit Wednesday following a harsh miss on results for the second quarter as consumers scale back on discretionary spending and the gaming industry sees a slowdown in the pandemic-fueled boom. Shares plunged 4%.
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc