4:11pm: Major indexes end the week on a high
The Dow closed Friday up 32 points, 0.1%, at 33,748, the Nasdaq Composite surged 209 points, 1.9%, to 11,323 and the S&P 500 improved 37 points, 0.9%, to 3,993.
For the S&P 500, it was the index's best week since June.
Investors reacted positively to softer-than-expected inflation data for October, released Thursday, which showed that nflation fell to 7.7% in October, versus 8.0% expected by analysts.
“From an equity market perspective, as long as the threat of much higher rates is out the way, this should remove a major headwind,” Barclays’ Emmanuel Cau wrote in a Friday note, according to CNBC.
11:45am: Dow running flat midday
The major US indices could end the week on a positive note, if trader sentiment extends into a second day.
Nearing midday, the S&P 500 was up by 0.1% at 3,960, the Nasdaq Composite was up by 0.6% at 11,183, while the Dow Jones slid by 0.7% to 33,488 points.
Chris Beauchamp, chief market analyst at online trading platform IG, said the markets are relatively calm today after the excitement around US CPI numbers has faded to an extent.
“Any suspicion that stocks would turn lower has been countered by the morning reports of China easing back some COVID restrictions. This has been sufficient to prevent more than modest losses on some indices, with the week ending in a far more optimistic tone. Confident for now that the Fed can walk back some of its most hawkish rhetoric, stocks look well set for additional gains into the second half of November,” Beauchamp wrote in a report.
The major movers at midday included DocuSign, up by 8.8%, while Invisalign maker Align Technology (NASDAQ:ALGN) was up by 8.5%, and Ralph Lauren Corporation rose by 7.7%.
On the downside, it wasn’t a good day on the healthcare front, as health services company Cigna (NYSE:CI) fell by 9.6%, Elevance Health was down by 7%, and Vertex Pharmaceuticals (NASDAQ:VRTX) slid by 6%.
9.40am: One CPI does not make a pivot, analysts say
US stocks dipped into the red on Friday morning as investor optimism faded after lower-than-expected CPI data yesterday set off the biggest rally seen since early 2020.
Just after the market opened, the Dow Jones Industrial Average had shed 142 points or 0.4% at 33,574 points, the S&P 500 was down 7 points or 0.2% at 3,950 points, and the Nasdaq Composite dipped 6 points or 0.1% at 11,108 points.
Analysts at ING noted that one CPI did not make a pivot. “For once the US CPI release broke with the bad habit of surprising on the upside and the market was quick to jump on the ‘pivot’ bandwagon,” the analysts wrote in a report.
They wrote that while the data was better than expected, it was but one reading and the month-on-month core rate of 0.3% was still signalling inflation running well above the Fed’s desired level.
“In fact, rallying equity markets and lower market yields easing financial conditions is probably not what it wants to see at this stage already without having more clarity where inflation is actually headed,” the analysts wrote.
6.30am: More gains?
US stocks are expected to rise on Friday, still enjoying the effects of the softer-than-expected inflation data for October, which propelled the S&P500 to its biggest daily gain since 2020 in Thursday’s trading.
Futures for the Dow Jones Industrial Average were 0.3% higher in pre-market trading, while those for the S&P 500 were up 0.3%, and contracts for the Nasdaq-100 rose 0.5%.
In data out yesterday, US headline inflation fell to 7.7% in October, versus 8.0% expected by analysts and from 8.2% printed a month earlier, stoking expectations that US rate-setters will scale back on further interest rate hikes, having delivered four straight 75 basis point increases so far this year.
“And more importantly, core inflation fell more than expected as well. Plus, there are hints that both headline and core figures could further cool down in the coming months, including falling housing prices, used car, and apparel prices,” noted Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
As inflation is the only thing that matters to the Fed, there was a jaw-dropping repositioning in the markets after the data release, she said, noting that the S&P500 soared 5.50%, Nasdaq surged by 7.50% and the Dow Jones rallied 3.70% on Thursday.
“Equities skyrocketed, the US yields and the US dollar tanked on the expectation that the Fed may be content with a lower end rate to call victory in its fight against inflation.”
“Investors reacted to the latest US inflation data as if a miracle happened. But in reality, US inflation remains very high compared to what the Fed is willing to achieve: the 2% target,” said Ozkardeskaya, adding that the Federal Reserve is still likely to raise interest rates by 50 basis points in December and by two 25 basis points in 2023.
“So, yes, yesterday was a fantastic day, really, but the markets went clearly well ahead of themselves and we will certainly see some correction and consolidation moving forward,” she warned.
Given the outsize reaction to the inflation figures, the University of Michigan’s consumer sentiment index, due for release at 10am ET today, is likely to pass by quietly even if it weakens as expected.
Contact the author at jon.hopkins@proactiveinvestors.com