4.10pm: A day of staggering gains - Nasdaq up 7.35%, S&P up 5.5%, Dow up 3.7%
The Dow Jones gained over 1,100 points and the S&P 500 over 5.5% as US markets advanced in spectacular fashion as weaker than expected inflation data sent stocks soaring higher.
At the close the Dow Jones Industrial Average was up 1,198 points, or 3.69%, to 33,712.21, the S&P 500 surged 207.38 points, or 5.53%, to 3,955.95 and the Nasdaq Composite roared 761 points higher, or 7.35%, to 11,114.15.
Mickey Levy at Berenberg described the inflation data as offering “a glimmer of hope for the Fed.”
“October’s encouraging CPI report and signs of softening labor market conditions will likely tilt the Fed toward our current call of a 50bp rate hike in December, but do little to meaningfully alter the Fed’s assessment of the terminal rate or how long rates will need to stay elevated given the strength of underlying inflationary pressures and upside risks to inflation expectations” he said.
Nevertheless the markets took it as signal that the Fed’s war on inflation was being won despite the number still being historically high.
Treasury yields plunged after the CPI data, with the 10-year Treasury yield falling more than 18 basis points to 3.946% as traders bet the Federal Reserve would slow its aggressive tightening campaign that’s weighed on markets all year.
“Interest rates are still running everything in markets,” said Exencial Wealth’s Tim Courtney. “With today’s CPI number coming down, the market is now betting pretty clearly that they think the interest rate [rises] are coming close to an end. So, you see those interest rate sensitive stocks doing really, really well.”
Tech stocks that have been hardest hit by the rise in inflation and surging interest rates led the gains. Shares of Amazon surged 12%, Meta leapt 10% and Tesla jumped 7%.
12.05pm: Nasdaq surged 6.2%, S&P rose by 4.7%
The major US indices surged higher on the decline in inflation shown by October’s consumer price index numbers, setting up a potential year-end rally for risk assets.
At midday, the S&P 500 was up by 4.7% at 3,925, the Nasdaq Composite was up by 6.2% at 10,997, while the Dow Jones soared higher by 3.0% to 33,504 points.
The Dow hit a session high of 33,528 points mid-morning, in its biggest one-day gain since 2020.
Joshua Mahony, senior market analyst at online trading platform IG, said US inflation data provided a welcome shot in the arm for markets, with the declines seen in both headline and core inflation.
“The impact of today’s inflation data has been further accentuated by comments from Fed members Patrick Harker and Lorie Logan, who see the pace of rate hikes slowing over the coming meetings. Markets are now pricing a 73% chance of a 50-basis point hike in December, coming off the back of four consecutive 75-basis point moves from the Fed,” Mahony wrote in a report.
“Whether that slowdown in tightening will be enough to maintain a prolonged period of upside for stocks remains to be seen. However, today’s data has certainly lifted hopes of a festive end to the year for investors,” he wrote.
The major movers at midday included investment management company T Rowe Price Group, up by 15.7%, while Atlassian (NASDAQ:TEAM) was up by 16%, DataDog rose by 15.6%, Mohawk Industries was up by 15.2%, and Caesar’s Entertainment rose by 14.8%.
On the downside, transportation manager RXO slid by 4.8%, investment house Cboe Global Markets fell by 4% and heathcare service provider McKesson was down by 2.6%.
9.35am: Long-awaited sign price pressures are easing
The three major indexes soared on Thursday morning as the latest inflation data from the Bureau of Labor Statistics shows US inflation cooled in October.
The Consumer Price Index (CPI) rose 7.7% year-over-year, down from 8.2% in September after August’s 9.1% peak. It rose 0.4% month-over-month, according to the Bureau.
The CPI came in below the consensus analyst expectation per Bloomberg of increases of 7.9% and 0.5%, respectively.
At the open, the Dow Jones Industrial Average had added 725 points or 2.3% at 33,240 points, the S&P 500 was up 125 points or 3.4% at 3,874 points, and the Nasdaq Composite was up 510 points or 4.9% at 10,863 points.
Forex.com market analyst Fiona Cincotta said this was the data the market had been waiting for: a strong sign that price pressures were falling and weakness could be seeping into the labor market.
“The market is now pricing in a probability of the Fed hiking rates by 50 basis points in the meeting on December 14th by 80%, up from 52% prior to the data,” she said.
6.30am: Inflation eyed
US stocks are expected to inch higher on Thursday ahead of key US inflation data and as investors consider the uncertainty arising from the midterm congressional elections.
Futures for the Dow Jones Industrial Average were 0.1% lower in pre-market trading, while those for the S&P 500 were up 0.2%, and contracts for the Nasdaq-100 rose 0.3%.
The gains seen by the Republican party in this week’s US midterm elections have been less emphatic than expected.
“While the Republicans have a slim majority in the House, it’s still too close to call for who will control the Senate. We may not get the final picture until December 6 runoff in Georgia,” noted Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
The looming uncertainty weighed on investor sentiment yesterday and is expected to continue being felt today. Just how the outcome of the midterms will play out for the economy and the path for interest rates remains to be seen. US rate-setters have delivered four consecutive interest rate hikes of 75 basis points this year as inflation remains stubbornly close to 40-year highs.
Against that backdrop, US inflation data for October, due out at 8.30am ET today, will be closely watched.
“Investors hold their breath before the US inflation data due today. Headline inflation in the US is expected to have eased from 8.2% (the previous month (to 8% in October, and core inflation is seen softer at 6.5%, compared to 6.6% printed a month earlier,” noted Ozkardeskaya.
If the data comes outs in line with expectations, or ideally softer than expected the hawks on the Federal Reserve will be kept at bay, and in turn contain the market selloff, she said.
“Whereas figures above expectations would be another hit to the investor sentiment, and send equities lower, yields, and the US dollar higher.”
Ozkardeskaya noted, however, that in six of the past seven months, inflation exceeded expectations.
“So, there is a good chance that it’s the case this time around as well.”
Contact the author at jon.hopkins@proactiveinvestors.com