The stock market hit a new high this week as the S&P 500 closed above 7,800 for the first time. This marks the 27th record close of 2026 for the index. Investor sentiment improved following news that inflation is cooling. The Producer Price Index remained unchanged in July, missing consensus expectations of a 0.2% gain. Annual producer inflation slowed to 4.7% from 5.5% in June.
These numbers pushed traders to adjust their expectations for interest rates. Most now anticipate that the Federal Reserve will hold rates steady in September. The probability of a rate hike dropped significantly from over 60% at the start of the month to roughly 25% by Friday. The semiconductor sector played a major role in the market performance as chip companies saw significant gains following positive industry projections.
Despite the market optimism, consumer confidence remains low. The University of Michigan reported that its preliminary August sentiment index fell to 51.0, missing expectations of 54.5. This drop represents the first decline in three months. The underlying data shows that few consumers expect their income to outpace inflation in the coming year, while year-ahead inflation expectations have increased to 4.3%.
Retail sales also fell 0.6% in July, though some of this decline stems from lower gasoline prices. There is a clear gap between Wall Street and Main Street. Investors are betting on continued corporate growth driven by large-scale spending on artificial intelligence, while many households report that they continue to lose purchasing power against current price levels.