Stocks advanced Tuesday, buoyed by strong bank profits and a surprisingly positive inflation report. All major U.S. indexes finished higher. The Nasdaq gained 0.9%, the S&P 500 rose 0.4%, and the Dow industrials saw a modest increase of less than 0.1%. This overall market uplift occurred despite a significant drop in International Business Machines (IBM) stock, which experienced its worst day on record.

The June inflation data revealed consumer prices increased by 3.5% year-over-year, falling short of the 3.8% economists had predicted. This eased investor concerns about the Federal Reserve potentially raising interest rates due to accelerating price growth. "This gives the Fed a little bit of room to breathe," noted Ross Mayfield, investment strategist at Baird, calling it "definitely good news."

Following the inflation report, traders adjusted their expectations for interest rate hikes. The probability of the Fed raising rates at its upcoming meeting decreased to approximately 17%, a notable decline from 42% the previous day, as indicated by CME Fed Watch.