S&P 500 Hits Record High as Soft Inflation Data Tempers Fed Rate Hike Bets

U.S. stock index futures were little changed in overnight trading after the S&P 500 closed at a new record high on Thursday. The rally was fueled by a benign producer inflation report that cooled investor expectations for a Federal Reserve interest rate hike in September.

Inflation Data Eases Rate Hike Fears

The latest economic data showed that U.S. producer prices were unchanged in July, following a revised 0.1% decline in June, according to a government report. On an annual basis, producer price inflation slowed significantly to 4.7%, a sharp drop from the 5.5% increase recorded in the previous month.

This report, combined with a mild consumer inflation reading earlier in the week, has shifted market sentiment regarding the Fed's next move. According to the CME FedWatch tool, traders are now pricing in a 65% probability that the central bank will keep interest rates on hold at its September meeting.

During Thursday's regular session, the S&P 500 rose 0.7% to close at a record 7,798.99. The tech-heavy NASDAQ Composite gained 0.8%, while the Dow Jones Industrial Average added 0.1%.

Tech Sector Leads the Rally

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Technology shares were at the forefront of the market's advance, buoyed by optimism over the inflation outlook. A key driver was memory-chip maker SanDisk Corporation (NASDAQ:SNDK), which surged nearly 14% after the company issued an upbeat long-term forecast.

The positive sentiment lifted other semiconductor stocks, with Micron Technology (NASDAQ:MU) climbing 4.2%. Major technology firms also saw gains, including Microsoft (NASDAQ:MSFT), which rose nearly 1%, and Meta Platforms (NASDAQ:META), which added 2.8%.

Looking Ahead

Investors are now turning their attention to Friday's economic calendar for further insights into the health of the U.S. economy. Key reports include retail sales data, which will provide a snapshot of consumer demand, along with business inventories and the University of Michigan's consumer sentiment survey.

Meanwhile, energy markets remain a potential headwind. While Brent crude prices fell on Thursday, they remain elevated amid geopolitical tensions. Persistently high energy costs could complicate the inflation picture and influence the Federal Reserve's policy decisions in the coming months.