Investing.com -- U.S. stocks posted strong gains Tuesday after cooler than expected inflation data raised the prospect of a hefty interest rate cut by the Federal Reserve in September.
At 09:35 ET (13:35 GMT), the Dow Jones Industrial Average rose 95 points, or 0.2%, the S&P 500 gained 43 points, or 0.8%, and NASDAQ Composite climbed 200 points, or 1.2%.
PPI inflation cooled in July
The focus this week is squarely on the latest U.S. inflation readings for more cues on the U.S. economy.
Data released earlier Tuesday showed the producer price index rose 0.1% on a monthly basis in July, compared with the 0.2% rise expected by economists. Annually, it rose to 2.2%, versus an estimate of a 2.3%.
Excluding volatile food and energy components, "core" PPI was flat on the month, compared to an expected 0.2% rise. Annually, the narrower measure of PPI stood at 2.4%, versus an estimated 2.7% advance.
Investors will parse through the data, including Wednesday's CPI release, to try and decide what the Federal Reserve will do at its September meeting.
Traders are split between a 25 and 50 basis point cut, but this sign of cooling inflation will likely give more weight to the likelihood to a bigger cut.
The Fed at the end of July kept the policy rate in the same 5.25%-5.50% range it has been for more than a year, but signaled that a rate cut could come as soon as September if inflation continued to cool.
Fears of an impending U.S. recession “look overstated,” analysts at UBS stated in a note on Monday.
The report suggests that despite recent market volatility and growing concerns over a potential economic downturn, the fundamentals remain strong.
“We expect the Federal Reserve to cut rates by 100 basis points in the remainder of this year, double our prior forecast, as it seeks to protect the labor market. However, recession risks look overstated, in our view, given that household finances remain solid,” the note states.
Home Depot cuts full-year outlook
While the second-quarter earnings season has mostly wound down, earnings from major retailers are due this week, including Walmart (NYSE:WMT), the world's largest by revenue.
Home Depot (NYSE:HD) stock fell over 1% after the retailer lowered its full-year outlook, citing weaker consumer demand for home improvement projects.
Strong consumer spending has mostly underpinned U.S. inflation this year, despite pressure from high interest rates.
Crude set to break winning streak
Crude prices slipped lower Tuesday, breaking a five-day winning streak as traders banked gains amid concerns about demand growth this year.
By 09:35 ET, the U.S. crude futures (WTI) dropped 0.8% to $78.41 a barrel, while the Brent contract fell 0.9% to $81.53 a barrel.
Both crude benchmarks gained more than 3% on Monday, boosted by elevated tensions in the Middle East amid fears that a bigger war in the Middle East will disrupt oil supplies from the crude-rich region.
However, despite these gains, the crude benchmarks have fallen around 3% over the course of the last month as demand for oil remains tepid, especially when compared to the growing supply.
The Organization of the Petroleum Exporting Countries cut its global demand forecast for 2024 on Monday, the first cut since it was made in July 2023, and comes after mounting signs that demand in China has lagged expectations.
(Ambar Warrick contributed to this article.)