Wednesday Market Recap: Stocks Rally on Positive Inflation Data

Stocks rallied on Tuesday, led by promising inflation data. The Nasdaq Composite soared 2.43%, and the S&P 500 climbed 1.68%. Meanwhile, the Dow Jones Industrial Average ended the day up 408 points, or 1.04% higher. The S&P 500 has recovered some of its recent losses and is now less than 5% from its record high set in July. All three major averages are back above their Aug. 2 closing level, where they were before the dramatic Aug. 5 global market sell-off.

Volatility has also eased since then. The CBOE Volatility Index (VIX) hovered below 20 on Tuesday after soaring above 65 last week.

Premarket Movers:

Positive Inflation Data Sparks Optimism

The producer price index (PPI) released on Tuesday showed wholesale inflation rose less than expected in July. The core PPI reading, which excludes volatile food and energy components, was flat. Dow Jones consensus estimates had expected increases of 0.2% for both readings. The headline PPI increased 2.2% year-over-year, a significant drop from June’s 2.7% reading.

Investors are now turning their attention to July’s consumer price index (CPI) report, set to be released Wednesday at 8:30 a.m. ET. Economists surveyed by Dow Jones expect a similar 0.2% increase for both the CPI’s all-items and core readings. A positive CPI reading could ease pressure on the Federal Reserve, allowing the central bank to focus on other economic challenges, such as the slowing labor market.

Google Unveils New AI Features and Pixel Phones

On Tuesday, Google (NASDAQ:GOOG, GOOL) introduced new artificial intelligence features that will use the company’s Gemini AI assistant, available on its Android devices.

The tech giant also announced the latest line of its Pixel phones. The Pixel 9 series, starting at $799, will feature a brighter screen for viewing in direct sunlight and more memory to support the AI features. Additionally, Google announced the Pixel Watch 3, which includes new features such as AI-powered workout recommendations.

Google aims to introduce its new AI to consumers before Apple launches its own AI on iPhones, Macs, and iPads later this year. While Google doesn't make a lot of money from its hardware business, these new offerings highlight the company’s push to stay ahead in the AI race.

Mortgage Rates Drop, Sparking Refinance Surge

Mortgage rates have dropped dramatically in recent weeks, and homeowners are taking notice. The Mortgage Bankers Association’s seasonally adjusted index showed that applications to refinance a home soared 35% last week compared to the previous week. They were up 118% compared to the same week one year ago.

While rates only dropped by 1 basis point last week, they have fallen by 33 basis points in the past four weeks and are 62 basis points lower than the same week a year ago. The refinance share of mortgage activity increased to 48.6% of total applications, up from 41.7% the previous week, as homebuyers continue to face high home prices and low supply.

UBS CEO's Outlook on Market Volatility

UBS (NYSE:UBS) CEO Sergio Ermotti commented on Wednesday that market volatility could intensify in the second half of the year. However, he does not believe the U.S. is heading into a recession.

Global equities experienced sharp sell-offs last week as investors reacted to weak economic data from the U.S., raising fears about an economic downturn in the world's largest economy. UBS expects the Federal Reserve to cut rates by at least 50 basis points this year, which could provide some relief to the markets.