The worst was avoided. This was enough for the S&P 500 to hit a new record high — its 16th this year. U.S. inflation data for July did not signal an approaching recession or stagflation. That alone was sufficient for an optimistic crowd, buoyed by another successful buy-the-dip move, to send the broad stock index soaring.

Reaction of stock indices to U.S. inflation

The increase in core inflation to 3.1% and the anchoring of consumer prices at 2.7% do not tell the whole story. The devil is in the details. Investors were encouraged by the fact that goods prices had barely risen. This means tariffs will not drive inflation as quickly as they did in 2022. According to Richmond Fed President Thomas Barkin, Americans were spending freely the funds they had received to offset pandemic losses at the time. Now it's a different story — they are switching to cheaper goods, leading to selective price increases.

If inflation is under control and the labor market is cooling, it is the right time for the Fed to resume a cycle of monetary expansion. According to Treasury Secretary Scott Bessent and major asset manager BlackRock, it makes sense to consider lowering the federal funds rate not by 25 bps but by 50 bps. The faster monetary policy is eased, the better for the S&P 500 and the U.S. economy.

Corporate leaders are increasingly confident in the economy's positive momentum. In Q2 earnings reports, the term "recession" was mentioned about 300 times — the lowest level since tracking began in 2001. This contrasts sharply with Q1, when mentions of a U.S. economic downturn spiked due to White House tariffs.

Trend in "recession" mentions in corporate reports

Thus, markets believe the worst has been avoided: there will be no U.S. recession in the next 12 months, and tariffs are not causing runaway inflation. Moreover, the growing likelihood of aggressive Fed monetary easing is giving additional momentum to the S&P 500 rally.

The broad stock index is also enjoying support from Donald Trump. This is significant, as all of the U.S. president's projects have so far been successful. Congress passed a major tax cut bill, and the White House signed trade agreements imposing tariffs ranging from 10% to 50%. The U.S. dollar and Treasury yields are falling, and the number of "doves" within the FOMC is increasing. Everything is going according to plan — and if that continues, the U.S. stock market rally may persist.

From a technical standpoint, the S&P 500 daily chart shows a resumption of the uptrend. A breakout above key pivot levels near 6455 would open the way for long positions in the broad stock index. A shift to selling would be warranted if it falls below its fair value of 6390.