4.11pm: US markets soar by the close
US stocks recovered from some hefty early losses to post some startling gains by the close shrugging aside stronger than expected US CPI data.
At the close the Dow Jones Industrial Average had risen 823 points, or 2.83%, to 30,039, a 1,400 point swing from its earlier lows, the S&P 500 advanced 93 points, or 2.60%, to 3,670 and the Nasdaq Composite jumped 232 points, or 2.23%, to 10,649.
The hot inflation number initially spooked markets once again but analysts said it just reaffirms, rather than the changes, what we already know, some aggressive interest rate rises are on the way.
Energy and banking stocks led the way with Chevron up 5% supported by firmer oil prices, while Goldman Sachs and JP Morgan rose 4.2% and 5.8%.
“Maybe we get this last gasp higher in inflation and from here we start to decelerate,” said Liz Ann Sonders, chief investment strategist at Charles Schwab told CNBC.
She added, however, that swings in stocks are likely to continue as investors digest more inflation data and earnings season kicks off.
12.05pm: Dow jumps 500 points in noon trading
US indices rebounded into green territory midday, led by tech and bank stocks, despite the consumer price index showing a 0.4% increase for the month, signalling that inflation is persisting.
At midday, the S&P 500 was up by 1.7% at 3,637, while the Nasdaq Composite climbed 1.5% at 10,564 and the Dow Jones rallied by over 500 points in the session, and settled at 29,745 points. The Dow had seen a 500-point drop earlier in the session.
Rob Clarry, investment strategist at UK wealth manager Evelyn Partners, said US CPI inflation rose 8.2% year-on-year in September versus consensus expectations of 8.1%, but lower when compared to 8.3% in August. On a monthly basis, Clarry said the increase was driven by higher prices for shelter, food, and medical care.
“Today’s inflation report surprised to the upside, derailing hopes for a Fed pivot in the near-term. This comes as investors were praying that some initial signs that labour market conditions were easing could prompt a rethink by the Fed,” Clarry wrote in a report.
“For example, the latest Job Opening and Labour Turnover Survey (JOLTS) revealed that US employers had de-listed more than one million job vacancies in August. Meanwhile, the Bureau of Labour Statistics (BLS) also noted that there was a 16.5% drop in the number of jobs created in September from August,” Clarry added.
He noted that, as inflation rates have a 12 to 18 month lag, he expects the US economy to face challenges in 2023.
The major movers at midday included Domino’s Pizza, up almost 9% on better-than-expected quarterly results, followed by semiconductor manufacturer Skyworks Solutions, up by over 6% despite hitting a 52-week low today, and Walgreens Boots rose by 5.9%.
Tech stocks such as Microsoft and Apple saw gains, along with microchip makers Nvidia and Micron. Banking giants Citigroup gained 4%, and JPMorgan Chase rose by 3.2%.
On the downside, Etsy slid by over 10% on expected slowing of holiday season sales due to lack of spending money on the part of consumers, while insurance holding company Progressive fell by 4.9% on a 3Q earnings miss.
9.35am: Core inflation hits four-decade high
US stocks plunged at the open on Thursday as the latest CPI data has all but confirmed the Fed will carry out further aggressive interest rate hikes to rein in inflation to its target of 2%.
In September’s CPI report, the core CPI (which excludes food and energy) increased 6.6% year-over-year marking its highest reading since 1982.
ADSS global head of strategy & trading services Srijan Katyal said the latest CPI figures showed high inflation was still on the rise, picking up pace over the previous months.
“Crucially, the annual rate of core inflation of 6.6%, which represents a 40-year high and stands nearly double the long-term average of 3.65%, might suggest that Fed’s fight against inflation has a long way ahead,” Katyal said.
“With core goods up, demand is still exceeding supply, meaning the Fed will need to react more strongly than it perhaps wants to. A 75-basis point rise is certainly at the forefront of everyone’s expectations.”
ADM Investor Services International Limited chief economist and global strategist Marc Ostwald noted that once again the Fed was left with no choice but to stick with its hawkish rhetoric, above all due to the continued upward trend in core CPI and clearly very ‘sticky’ services price pressures.
“The sharp negative reaction in treasuries and equities underscores the point that markets keep tripping up on their eternal penchant for putting an optimistic spin on data,” Ostwald added. “Credit spreads and financial conditions will require even more careful monitoring.”
Just after the market opened, the Dow Jones Industrial Average had slipped 1.5% or 445 points at 28,766 points, the S&P 500 was down 70 points or 2% at 3,519 points, and the Nasdaq Composite had shed 300 points or 2.9% at 10,117 points.
8.40am: Stocks reverse on hot CPI
After gaining ground earlier in the morning, futures for the three major indexes have plummeted following the release of the highly anticipated consumer price index (CPI) report for September which showed inflation remains red hot in the US.
According to the US of Bureau Statistics, the CPI rose 0.4 in September on a seasonally adjusted basis, after rising 0.1 in August.
For the 12 months to September, the CPI increased 8.2% before seasonal adjustment, coming in slightly higher than the consensus analyst expectation per Bloomberg of 8.1%.
The core reading for all items excluding food and energy rose 6.6%, above the consensus analyst expectation of 6.5%.
Shortly after the release of the inflation data, futures for the Dow Jones Industrial Average had spiralled down 1.5% or 437 points, the S&P 500 was down 2%, and the Nasdaq Composite had slipped 3% in pre-market trading.
6.30am: Calm ahead of data
US stocks are expected to open slightly higher on Thursday, finding some stability after recent steep falls, ahead of key data on inflation for September.
Trading is expected to remain cautious, however, amid widely held predictions that US rate setters are unlikely to step back from hiking interest rates aggressively.
Futures for the Dow Jones Industrial Average were up 0.4% in pre-market trading, while those for the S&P 500 were 0.4% higher, and contracts for the Nasdaq-100 added 0.2%.
“More inflation, more tightening. Minutes from the latest FOMC (Federal Open Market Committee) meeting show policymakers believe higher rates are here to stay: higher for longer as I have been saying for ages now,” warned Neil Wilson, chief market analyst at markets.com
“And if there is an overshoot, it’ll be too much tightening, not too little,” he said.
Minutes from the FOMC's last rate-setting meeting, published yesterday, indicated that interest rates would continue to rise. Share prices fell after the minutes revealed concerns among rate setters that they may be doing too little to tame inflation. It also did not help that the FOMC lowered projections for the economy, expecting GDP to grow at just a 0.2% annualized pace in 2022 and 1.2% in 2023.
“As I noted after the non-farm payroll report last Friday, the Fed has barely made a dent in inflation and the labor market is strong,” said Wilson.
That puts the focus firmly on US consumer price data for September due out at 8.30am ET today. Investors fear that the FOMC’s three 75-basis point rate hikes have not had their desired effect to rein in headline inflation, which remains stubbornly around 40-year highs.
“Today’s CPI release will be above 8% or thereabouts but it doesn’t really matter - it has a long way to come down still. Fed officials are worried that the longer it stays at this kind of level, the more expectations become ingrained. Forget any natural pivot - the Fed keeps on going until something snaps. So, expect 75 bps (basis points) in Nov and another in Dec unless there is a major crisis before then,” added Wilson.
Weekly jobless claims data, also due at 8.30am ET, will be another closely-watched indicator of whether the labor market is beginning to show signs of strain amid rising interest rates.
Contact the author at jon.hopkins@proactiveinvestors.com