July 27, 2026 marked a milestone day for U.S. stocks. After the release of the key inflation indicator—the June core Personal Consumption Expenditures (PCE) price index—data showed inflation steadily approaching the Fed's 2% target, driving the three major indexes to new all-time closing highs, injecting a shot of adrenaline into global risk assets.

Inflation data unexpectedly cools

The Commerce Department reported on Wednesday that the June core PCE price index rose 2.1% year-over-year, below both the prior month's 2.3% and market expectations of 2.2%. The month-over-month increase was 0.1%, also slowing from 0.2% last month. Meanwhile, the headline PCE rose 2.5% year-over-year, in line with expectations. Analysts noted this is the closest reading to the Fed's target since early 2021, marking a decisive victory in the fight against inflation.

"This report is almost flawless," said Ken Mullins, senior investment strategist at Allianzaz. "It removes the last reservations for further rate hikes, and now the market can confidently price in a September rate cut." According to the CME FedWatch Tool, fed fund futures showed the probability of a September rate cut surging from 68% to 85% after the data, with the expected total rate cut for the year expanding from 75 basis points to 100 basis points.

Three indexes hit new highs, tech stocks lead

Boosted by the data, U.S. stocks opened higher and maintained strong momentum throughout the session. At the close:

  • S&P 500 rose 1.2% to 5,820.45, breaking the previous high set in May;
  • NASDAQ Composite surged 1.6% thanks to strong tech weights, closing at 19,105.62, above the psychological 19,000 mark for the first time;
  • Dow Jones Industrial Average edged up 0.8% to 40,900.12, also a new record.

By sector, information technology and consumer discretionary performed best. Apple, Microsoft, Amazon, and Alphabet all rose over 1.5%, with Apple shares climbing 2.8% to $256 on strong pre-orders for its new iPhone, pushing its market cap near $4 trillion. Chip stocks also rallied, with Nvidia benefiting from sustained AI demand, up 3.2% to $115.

Bond yields fall, dollar under pressure

Following the inflation data, U.S. Treasury yields dropped significantly. The 10-year yield fell from 4.15% to 4.02%, while the 2-year yield dropped to around 4.50%, below the fed funds rate. The yield curve inversion narrowed further, seen by the market as a signal that recession warnings are fading. The dollar index fell 0.6% to around 104.0, its lowest since July, as investors anticipated an earlier Fed easing cycle.

Earnings season continues, corporate profits resilient

We are now in the thick of earnings season, with over 40% of S&P 500 companies having reported results. According to FactSet data, 78% of these companies beat EPS estimates, with overall earnings up about 10.2% year-over-year. Beyond the inflation tailwind, healthy corporate fundamentals provided additional support for the indexes. On Tuesday after the bell, social media giant Meta Platforms reported stronger-than-expected Q2 results, with ad revenue up 16% and announcing a $40 billion share buyback plan. Its stock surged 7% after hours and rallied in today's regular trading, boosting the tech sector.

However, not all companies benefited. Tesla reported Q2 results Tuesday after the bell that beat revenue expectations but disappointed on margins, sending its shares down 3.5% today. Overall, the strength of tech titans offset some negative effects.

Expert views and analysis

Jan Hatzius, chief economist at Goldman Sachs, noted: "The June core PCE data confirms the sustainability of disinflation. With the labor market gradually cooling, the Fed has ample room to cut rates in September. We are raising our year-end S&P 500 target to 6,000." However, she also cautioned that geopolitical risks remain the biggest wild card, especially the Middle East situation and global trade frictions.

Bank of America struck a more cautious tone, with its rates strategy team arguing that market pricing for rate cuts may be too aggressive. If wage inflation rebounds or services prices reignite, the Fed could delay action. But overall, most institutions agree that while U.S. stock valuations are elevated, strong earnings growth supports current levels.

Outlook: Focus on next week's Fed meeting

Despite today's exuberance, investors are already turning their attention to next week's Federal Open Market Committee (FOMC) meeting (July 30-31). While the consensus expects no change in rates, any tweaks in the policy statement could trigger sharp volatility. In addition, the advance estimate of U.S. second-quarter gross domestic product (GDP) will be released the following day, with the market expecting annualized quarterly growth of 2.0%. An upside surprise could briefly disrupt rate cut expectations.

Mark Olson, chief market analyst at Allianzaz, summed up: "U.S. stocks stand at a new historical starting point today, but the path to new highs is rarely linear. We advise investors to maintain balanced allocations, focus on high-quality earnings growth stocks, and also watch for catch-up potential in small and mid-cap stocks. After all, the typical pattern early in a rate-cutting cycle is for leadership to broaden from large-cap tech to the wider market."

At press time, U.S. stock futures edged higher, suggesting the rally may continue at tomorrow's open. Other major global markets also received a boost, with European indexes closing in the green and Asian-Pacific markets expected to follow suit this morning.