S&P 500, Nasdaq 100 Hit Highs as Inflation Stays Elevated

The economic logic is simple. Higher prices lift revenues before costs fully catch up, which supports margins for companies with real pricing power. That is why energy producers, industrial names and large-cap growth stocks can all prosper in an inflationary environment if inflation is steady rather than disorderly. XLI, the industrials ETF, rose to 185.18 on Aug. 7, near record territory, underscoring how investors are leaning into cyclicals and capital-spending winners rather than hiding from inflation.

Fresh inflation data reinforces the backdrop. The consumer price index was 332.568 in June, up from 332.407 in April, while core CPI stood at 336.065, barely changed from May. Forecasts point to a modest 0.89% monthly rise in July CPI and a 0.33% increase in core. That is not the kind of inflation that forces an emergency policy response, but it is enough to keep nominal growth alive and preserve corporate pricing power. The 10-year Treasury yield at 4.69% remains elevated, yet equities are absorbing it because the market is increasingly focused on earnings resilience and the possibility of eventual easing, not on runaway prices.

What matters for investors is that inflation is no longer being read as an unambiguous threat. Adalytica’s confidence gauge for the Fed’s 2% inflation target is at 96, or “Extreme Greed,” after jumping 54 points over the past month, while wage inflation sentiment sits at 64. That combination tells you the market is not panicking about inflation — it is positioning for a world where prices, wages and revenues stay firm enough to keep nominal GDP growth supportive of stocks.

This is also why the best opportunities remain in the obvious but still underappreciated beneficiaries of inflation: energy, industrials, defense, infrastructure and select mega-cap technology platforms with pricing power and scale. Exxon Mobil has already told investors that higher prices and margins boosted earnings, and Chevron flagged inflation and supply-chain costs as a live issue. Those pressures are a problem for consumers, but for shareholders they often translate into stronger cash flow and better capital returns in sectors that can pass costs through.

The market underestimates how durable that setup can be if inflation remains moderate and growth does not break. In that environment, the losers are duration-heavy assets that depend on lower rates, while the winners are companies that can reprice, expand revenue in nominal terms and keep funding buybacks, dividends and capex. That is why the current rally has room to continue: inflation is not a headwind for stocks until it becomes inflation without control.

For investors, the playbook is to stay overweight the real-economy beneficiaries of persistent nominal growth and to use any pullback in broad indexes as a chance to add exposure to the sectors that thrive when prices rise. The higher prices go, the better it can be for stocks — provided the Fed stays behind the curve just enough to let earnings do the work.