S&P 500 rebounds as inflation eases and bank earnings remain positive

The S&P 500 rebounded on Tuesday, rising 0.38% to 7,543.59 points as market sentiment improved following softer-than-expected inflation data and positive earnings results from major banks.

Among the 11 sectors in the S&P 500, technology recorded the strongest gains, while healthcare continued to face pressure.

The main driver of the market was the June CPI report.

The U.S. Consumer Price Index fell 0.4% month-on-month, while core CPI remained unchanged.

On an annual basis, headline inflation eased from 4.2% to 3.5%, while core inflation declined to 2.6%. The data reduced concerns that the Federal Reserve could raise interest rates again as early as July, thereby supporting demand for growth and technology stocks.

The second-quarter earnings season also got off to a relatively positive start. Goldman Sachs rose 9% after reporting better-than-expected earnings, while JPMorgan Chase and Bank of America gained 2.5% and 1.88%, respectively.

Earnings among S&P 500 companies are forecast to increase by 23.6% year-on-year, marking a second consecutive quarter of growth above 20%. Among the companies that have already reported, most have exceeded EPS and revenue expectations, although the proportion of companies that have released results remains relatively low.

Overall, the short-term outlook for the S&P 500 continues to be supported by easing inflation and expectations of strong earnings growth. However, the renewed rise in oil prices amid tensions in the Middle East could bring inflationary pressures back into focus, while the index’s forward P/E ratio currently stands at 20.5 times, above both its five-year and ten-year averages.

In my view, the current recovery in the S&P 500 remains well supported as inflation eases and corporate earnings stay resilient. However, with valuations already elevated, the market may struggle to continue rising on expectations alone. Companies will need to demonstrate sustainable earnings growth, while the Federal Reserve must maintain a careful balance between controlling inflation and supporting the economy.

The S&P 500 may still reach new record highs, but further gains at this stage will depend more heavily on actual earnings growth rather than expectations surrounding monetary policy.