The stock market, rattled by President Donald Trump's trade war , saw a glimmer of good news on Wednesday.
It came in the form of the latest inflation data, which showed that prices cooled slightly more last month than economists had expected. The 0.2% increase was the smallest in four months.
The data came at a time when Trump's tariffs have sparked economic-growth worries , and even calls for an imminent recession . It was positively received because it was seen as giving the Federal Reserve increased flexibility to fight a stalling economy with rate cuts — one of its most crucial anti-recession tools.
It also alleviated — at least temporarily — half the equation for a fate worse than recession: stagflation , which features listless growth and stubbornly high inflation.
After immediate gains exceeding 1%, major US indexes pared increases as the day progressed, with the Dow finishing in negative territory.
Here's where indexes stood at the 4 p.m. market close on Wednesday:
Some of the market's most beaten-down names were sharply higher Wednesday, and the Magnificent Seven tech stocks all gained. Notably, Nvidia stock increased as much as 7%, while Tesla — which plummeted 15% on Monday, extending a more than 50% sell-off — rose 9% at intraday highs.
US stocks are fresh off a brutal two days, which included the worst decline for the Nasdaq since 2022 . The weekslong tariff sell-off has erased nearly $5 trillion from the benchmark S&P 500 index since it peaked in mid-February.
Wednesday's inflation print brought "some much needed relief for equity markets, averting immediate concerns around stagflation and giving the Fed space to cut policy rates in the coming months if economic data continue to deteriorate," Seema Shah, the chief global strategist at Principal Asset Management, wrote in a note.
She added that recent economic concerns meant there's a likelihood a "Fed put" would need to come into play soon.
Investors have been increasingly concerned about a downturn in recent weeks, particularly after Trump followed through with his latest round of tariffs, while refusing to rule out a recession .
But while recession chatter is still making the rounds on Wall Street, cooler inflation is quelling fears that the US could see stagflation.
Importantly, the numbers are giving markets more confidence that the Fed has more room to lower interest rates, either in response to cooler inflation or to stimulate the economy in the event of a downturn.
"The tariff-battered markets are going to breathe a sigh of relief this morning, as higher inflation was the only thing that could make things worse," Chris Zaccarelli, the chief investment officer at Northlight Asset Management, wrote, adding that he believed the Fed still had the flexibility to support a weakening economy.
Markets, though, still expect the Fed to show some restraint in lowering rates at coming policy meetings.
While investors are expecting a steeper pace of rate cuts by the end of 2025, investors see a 97% chance that the central bank will leave rates unchanged at the meeting on Tuesday and Wednesday next week and a 68% chance that's followed by another pause in May, according to the CME FedWatch Tool.
Shah said that she believed stocks were unlikely to enter "full Fed put glee mode."
"It's worth remembering that this may be the calm CPI report before the storm," she said. "Not only does the Fed need to wait for tariff policy clarity, but once tariff implementation arrives it is likely to bring at least some price increases, with the inflation picture potentially getting uglier as the months go on. The Fed — and markets — are not yet in the clear."
Correction: March 13, 2025 — An earlier version of this story misstated the day of the week for index data. It was Wednesday, not Monday.
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