U.S. stocks ended sharply higher on Wednesday, with the Nasdaq and S&P 500 closing at their highest levels in more than a year, as fresh data showed that inflation slowed further in June to its smallest annual increase since early 2021. This raised hopes that the Fed might soon put an end to its interest rate hikes. All three major indexes ended in positive territory.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) rose 0.3% or 86.01 points to close at 34,347.43 points.

The S&P 500 gained 0.7% or 32.90 points to end at 4,472.16 points, recording its highest closing level since Apr 8, 2022. Materials, utilities, communication services and tech stocks were the best performers on the index.

The Materials Select Sector SPDR (XLB) rose 1.3%. The Technology Select Sector SPDR (XLK) climbed 1.1%. The Communication Services Select Sector SPDR (XLC) and Utilities Select Sector SPDR (XLU) added 1.2% and 1.5%, respectively. Nine of the 11 sectors of the benchmark index ended in positive territory.

The tech-heavy Nasdaq jumped 1.2% or 158.26 points to finish at 13,918.96 points, recording its highest closing level since Apr 5, 2022.

The fear-gauge CBOE Volatility Index (VIX) was down 8.76% to 13.54. Advancers outnumbered decliners on the NYSE by a 3.23-to-1 ratio. On Nasdaq, a 1.93-to-1 ratio favored advancing issues. A total of 11.20 billion shares were traded on Wednesday, higher than the last 20-session average of 11.15 billion.

Inflation Data Raises Optimism

Stocks have been trading higher this week after taking a beating last week as investors eagerly awaited the release of the all-important inflation data. The optimism got a further boost on Wednesday sending stocks on a rally as Treasury yields and the U.S. dollar fell following the release of the consumer price index reading.

Fresh data for June showed inflation increasing at its slowest pace since March 2021. The Consumer Price Index (CPI) rose a meager 0.2% in June on a month-over-month basis. Economists had projected a 0.3% increase. On a year-over-year basis, CPI rose 3% in June from May’s 4%. Economists had projected a rise of 3.1%.

Core CPI, which excludes the volatile energy and food costs, also rose a modest 0.2%, its smallest increase in nearly two years. Also, the annual rate of inflation fell to 5% in June from 5.3% in the prior month.

The data was cheered by investors, sending stocks on a rally. The Fed has indicated that two more rate hikes of 25 basis points each would be required this year, with the majority of the market participants believing that the first will come in July.

However, Wednesday’s CPI inflation data raised optimism that the Fed may also be close to putting an end to its interest rate hikes. Tech companies, which are sensitive to higher interest rates, got a boost following the CPI reading. Shares of Apple Inc. (AAPL Quick QuoteAAPL - Free Report) increased 0.9%, while NVIDIA Corporation (NVDA Quick QuoteNVDA - Free Report) increased 3.5%. NVIDIA has a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Investors are now waiting for the producer price index report, another closely watched gauge of inflation, which is due on Thursday. Also, they are looking forward to the start of the second-quarter earnings season, which will unofficially kick start this week with some of the country’s biggest banks releasing their quarterly results.

Economic Data

In other economic data released on Wednesday, economic activity in the United States increased marginally in May and June, according to the Fed’s latest Beige Book report. The report also said that the slow momentum is likely to prevail as five out of its 12 districts recorded modest growth, while two reported marginal declines. Five other districts reported flat activity.