Stocks Are at Record Highs — Here's What's Happening and Why It Matters
The S&P 500 — a collection of 500 large U.S. companies often used as a stand-in for the overall stock market — closed at a record high of 7,798.99 on August 13, 2026, rising 50.49 points or 0.65%. It eased 0.2% the next day but was still on pace for a third straight weekly gain, alongside the Nasdaq Composite, which closed up 0.8% on August 13. The S&P 500 has gained nearly 14% since the start of the year through mid-August. On August 5, the Dow Jones Industrial Average — another major stock index — advanced 0.5%, or 263 points, to close at a record for the third straight day, while the S&P 500 declined 0.2%.
The record close followed an August 12 report showing U.S. consumer prices rose 3.4% over the past year. That figure is called CPI, or the Consumer Price Index — it's how the government measures inflation, which is the rate at which prices for everyday things like groceries, rent, and gas are going up. At the same time, more than 40 S&P 500 companies reported about $9.6 billion in tariff refunds, according to the Wall Street Journal. A tariff is a tax on imported goods; a refund means the government is giving back money companies previously paid in those taxes.
After seeing the inflation number, traders increased their bets that the Federal Reserve — the central bank that sets U.S. interest rates — would leave rates unchanged at its September 15–16 meeting. They put the chance of a rate hike at 38%. The Fed's rate-setting committee, called the FOMC, last met on July 28–29 and held its benchmark rate at 3.50% to 3.75%. That pause has now lasted at least three meetings in a row. The Fed has said it expects to cut rates once in 2026.
The bigger picture is that the Fed's current rate range is lower than the peaks it hit after the pandemic, but with inflation at 3.4% — still well above the Fed's 2% goal — the true cost of borrowing is only slightly higher than inflation. Think of it this way: if the Fed charges banks 3.75% to lend money but prices are rising at 3.4% a year, the real squeeze on the economy is pretty thin. It's still slowing things down, but not by much.
The 38% chance the market assigns to a rate hike in September — rather than the cut the Fed itself has signaled — tells us traders are worried inflation might not cooperate. If the Fed actually raised rates instead of holding steady, that would surprise almost everyone. The gap between what the Fed says it plans and what traders are bracing for comes down to tariffs pushing up costs and services inflation staying sticky.
Different Parts of the Market Are Moving in Different Directions
The S&P 500's technology sector index stood at 6,950.20, down 1.10% that day — worse than the broader market. A retail fund (a basket of retail company shares you can buy like a single stock) was up only about 4% for the year, compared to the S&P 500's nearly 14%.
That gap makes sense when you think about what tariffs do. Companies that sell imported goods — like many retailers — face higher costs from tariffs, which eats into their profits. Mega-cap technology companies, which are the giant names that dominate the S&P 500, are less exposed to import tariffs, so they keep climbing and pulling the whole index up with them. A narrower version of the S&P 500 tracking 50 high-conviction stocks stood at 5,767.07 on August 13, and a sustainability-screened variant was at 688.75 on August 10, up 23.97% over the past year.
This momentum has been building since late spring. In the week of May 22, the S&P 500 rose 0.4% on Friday and 0.9% for the week — its longest weekly winning streak since December 2023.
What This Means for You
For savers, the Fed's rate range of 3.50%–3.75% means money market funds and short-term CDs (certificates of deposit — bank accounts that lock your money for a set time in exchange for a fixed rate) still pay around that range. That sounds good until you factor in 3.4% inflation. If your savings earn 3.75% but prices go up 3.4%, your real gain is only about 0.35%. You're basically running in place.
For borrowers, the Fed holding steady means credit cards with variable rates and adjustable-rate mortgages stay where they are. The 38% chance of a September hike is a minority bet, but it's not small enough to ignore. If traders shift from expecting a hold to expecting a hike, that would push up borrowing costs across the economy — affecting everything from mortgage rates to bond yields.
The Big Unanswered Question
Nobody knows yet whether inflation dropping to 3.4% is the start of a steady decline toward the Fed's 2% goal or just a temporary pause. One month of data doesn't make a trend. The Fed's September meeting will include another month of inflation and jobs data before they decide. Right now, the market's pricing shows real uncertainty — traders aren't confident in either direction.
The tariff refunds — $9.6 billion across more than 40 companies — show how much trade policy is affecting corporate bottom lines. Getting a refund helps those companies once, but the underlying tariffs are still a cost they have to deal with going forward. The retail sector's 4% gain versus the S&P 500's 14% tells that story in a nutshell.
