Stocks Hit Record Highs as Inflation Holds at 3.4% and the Fed Stays Put

The S&P 500 closed at a record high of 7,798.99 on August 13, 2026, rising 50.49 points or 0.65%, before easing 0.2% on August 14 — still on pace for a third consecutive weekly gain alongside the Nasdaq Composite, which closed up 0.8% the prior day. The benchmark index has gained nearly 14% year-to-date through mid-August. The Nasdaq's August 13 advance of 0.8% also contributed to a third straight weekly gain for both indices. On August 5, the Dow Jones Industrial Average 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 August 13 record close followed the August 12 CPI release showing U.S. consumer prices increased 3.4% year-over-year. The CPI, or Consumer Price Index, is the government's main gauge of inflation — how fast the cost of everyday goods and services is rising. That print landed against a backdrop of more than 40 S&P 500 companies reporting approximately $9.6 billion in tariff refunds, according to WSJ coverage. Tariff refunds mean the government is returning money companies previously paid in import taxes, which gives those companies a one-time cash boost.

The inflation data prompted traders to add to bets favoring no change in rates at the Federal Reserve's September 15–16 meeting, pricing a 38% chance of a rate hike next month. The FOMC — the Federal Open Market Committee, the Fed group that sets interest rates — held its benchmark rate steady at a target range of 3.50% to 3.75% at the July 28–29 meeting, extending a pause that has now persisted through at least three consecutive meetings, including the April 2026 gathering. The Fed has forecast one rate cut in 2026.

The broader context here is that the Fed's current 3.50%–3.75% range reflects a cumulative easing cycle from the post-pandemic peak, but the persistence of 3.4% inflation — still above the central bank's 2% target — keeps the real policy rate in mildly restrictive territory. Think of the real rate as the nominal rate minus inflation: if the Fed charges 3.75% but inflation is 3.4%, the true cost of borrowing is only about 0.35% in purchasing-power terms. That slim cushion is still enough to slow the economy, but it's not the heavy brake it once was.

The 38% probability assigned to a September hike, rather than a cut, signals that markets are pricing in a non-trivial tail risk of tightening, which would be a materially hawkish surprise if it materialized. This stands in tension with the FOMC's own dot-plot — the committee's internal forecast showing where each member expects rates to go — which signals a single cut. The gap suggests the market is hedging against the possibility that tariff-driven cost pressures or sticky services inflation force the committee's hand.

Sector Performance Splits Wide Open

The divergence in sector performance is worth noting. The S&P 500 Information Technology sector index stood at 6,950.20 with a daily price return of -1.10% as of mid-August, underperforming the broader index on that session. A retail ETF had added roughly 4% year-to-date, lagging the S&P 500's near-14% advance by a wide margin. An ETF, or exchange-traded fund, is a basket of stocks you can buy like a single share; a retail ETF tracks companies that sell to consumers.

That dispersion between consumer-facing companies and the tech-heavy benchmark fits an environment where tariff-related cost uncertainty weighs on profit margins for companies with greater imported-goods exposure, while mega-cap technology — less sensitive to import tariffs — continues to drive index-level returns. The S&P 500 Focused 50 Index, a concentrated variant tracking 50 high-conviction names, stood at 5,767.07 as of August 13, and the S&P 500 Scored & Screened Index (a sustainability-screened variant) was at 688.75 as of August 10, with a one-year price return of 23.97%.

Looking further back, the current momentum extends a trend visible since late spring. In the week of May 22, the S&P 500 rose 0.4% on Friday and 0.9% for the week, clinching its longest weekly winning streak since December 2023.

What This Means for Your Money

For savers, the 3.50%–3.75% federal funds range translates to money market yields and short-term CD rates that remain attractive in nominal terms but are losing ground to 3.4% inflation in real terms. A money market fund is a low-risk savings vehicle that tracks short-term interest rates; a CD, or certificate of deposit, is a fixed-term bank deposit that pays a set rate. Both now yield roughly what inflation is eating — so in purchasing power, savers are running in place.

For borrowers, the hold means variable-rate credit products and adjustable-rate mortgages stay anchored at current levels. The 38% implied probability of a September hike, while a minority outcome, is high enough to warrant attention: a shift from pricing a hold to pricing a hike would ripple through rate-sensitive equities, the Treasury curve, and credit spreads. In plain terms, if traders start betting rates go up instead of staying flat, stocks that are sensitive to borrowing costs, government bond yields, and the extra yield investors demand for holding corporate debt over Treasuries would all move.

The Unanswered Question

What remains unresolved is whether the CPI moderation to 3.4% is a reliable trajectory toward the Fed's target or a plateau. One data point does not establish a trend. The FOMC's September 15–16 meeting will be informed by another month of inflation and labor-market data between now and then, and the market's current pricing reflects genuine uncertainty about the path rather than conviction in either direction.

The tariff refund data — $9.6 billion across more than 40 S&P 500 companies — hints at the scale of trade-policy friction working through corporate income statements. Companies are recovering duties previously paid, which provides a one-time earnings tailwind, but the underlying tariff regime remains a structural cost factor for import-dependent businesses. The retail sector's 4% year-to-date gain against the S&P 500's 14% captures that dynamic in miniature.