Stocks Rise as Inflation Cools the Fed, but Chip Rout Keeps the Rally Honest

Stock markets climbed on fresh inflation data showing cooler price pressures in both the Consumer Price Index and Producer Price Index, reinforcing expectations that the Federal Reserve will hold interest rates steady. The softer prints gave traders confidence that the central bank's tightening cycle has ended, at least for now.

The rally wasn't uniform. Semiconductors sold off 2.1% as investors rotated out of crowded AI-themed positions and into mega-cap technology names with stronger balance sheets. The shift reflects growing skepticism about whether the massive capital expenditure on artificial intelligence infrastructure will deliver commensurate returns. Geopolitical risk also weighed on sentiment, with tensions in the Persian Gulf adding a cautious undertone to an otherwise bullish session.

The divergence between broad market strength and semiconductor weakness highlights a key tension: traders are rewarding the Fed's pivot while simultaneously questioning the sustainability of the AI trade that drove much of 2023's gains.