Wall Street’s main stock indexes climbed on Tuesday as cooler-than-expected inflation data boosted expectations that the Federal Reserve was done raising interest rates and could start cutting them next year. Both the S&P 500 and the tech-heavy Nasdaq were at a two-month high after data showed that U.S. consumer prices were unchanged in October amid lower gasoline prices. In the 12 months through October, the CPI climbed 3.2% after rising 3.7% in September, while economists had forecast a 3.3% gain on a year-on-year basis.
Quick Read
- Positive Response to U.S. Inflation Report: Wall Street experienced significant relief with stocks leaping after a favorable U.S. inflation report, indicating a slowdown in inflation.
- Strong Gains in Major Indexes: The S&P 500 rose by 1.6%, nearing its best level in two months, while the Dow Jones Industrial Average increased by 1.2%, and the Nasdaq composite was up by 2.1%.
- Inflation and Interest Rate Hopes: The inflation report suggested a cooling trend, raising hopes that the Federal Reserve might stop increasing interest rates.
- Widespread Rally in Stock Market: Over 90% of stocks in the S&P 500 saw gains, with technology and high-growth stocks like Amazon and Nvidia making significant jumps.
- Boost in Small Company Stocks: The Russell 2000 index, representing small stocks, saw a substantial surge, potentially marking its best day of the year.
- Fed’s Balancing Act Hopes: The report fueled optimism that the Federal Reserve might manage to reduce inflation without triggering a severe recession, although this outcome remains uncertain.
- Fed’s Interest Rate Increases: The Federal Reserve has raised its main interest rate to the highest level since 2001, causing financial market disturbances and bank failures earlier in the year.
- Inflation Report’s Positive Impact: The encouraging inflation data led to a drop in Treasury yields and accelerated expectations for the Fed’s potential rate cut.
- Economist’s Viewpoint: EY Chief Economist Gregory Daco sees a combination of factors like reduced consumer demand and easing wage growth contributing to a disinflationary trend into 2024.
- Significant Move in Bond Market: The yield on the 10-year Treasury note significantly dropped, reflecting a major shift in the bond market.
- Consumer Price Rise Slows Down: Overall consumer prices increased by 3.2% in October year-over-year, a deceleration from last year’s peak above 9%.
- Housing Cost Indicator’s Significance: A key indicator related to housing costs showed a noticeable slowdown, which may influence the Fed’s decision in December.
- Market Expectations for Fed’s Next Meeting: Traders now foresee no interest rate increase at the Fed’s December meeting.
- Global Impact on Financial Markets: The dollar’s value decreased against other currencies, gold prices rose, and there was a positive reaction in stock markets across Europe and Asia.
- Retail Sector Updates: Home Depot reported higher-than-expected profits but noted consumer hesitancy in purchasing big-ticket items due to high interest rates, with other major retailers like Target and Walmart set to report their results later in the week.
- Earnings Reporting Season: The summer earnings reporting season for S&P 500 companies has been generally better than expected, indicating the first growth in a year.
The Associated Press has the story:
Wall Street rallies on hopes cooling inflation means no more rate hikes
Newslooks- NEW YORK (AP)
Stocks are leaping Tuesday after an encouraging report on U.S. inflation sent waves of relief through Wall Street. The S&P 500 was 1.6% higher and near its best level in two months. The Dow Jones Industrial Average was up 397 points, or 1.2%, as of 9:45 a.m. Eastern time, and the Nasdaq composite was 2.1% higher.
The highly anticipated report showed not only that overall inflation slowed last month from September, but so did a key underlying figure that economists see as a better indicator of future trends. The slowdown bolstered bets on Wall Street that inflation is cooling enough for the Federal Reserve to finally be done with its market-crunching hikes to interest rates.
Such hopes lifted all kinds of investments, and more than 90% of the stocks in the S&P 500 climbed in a widespread rally. Technology and other high-growth stocks tend to get some of the biggest boosts from easier rates, and a 2.5% jump for Amazon and 2.1% rise for Nvidia were two of the strongest forces lifting the S&P 500.
Stocks of smaller companies also got a huge boost, with the Russell 2000 index of small stocks potentially on track for its best day of the year. It surged 3.6%. Smaller companies are often seen as more dependent on borrowing cash to grow, which makes them particularly vulnerable to high interest rates.
The inflation data helped to buoy hopes on Wall Street that the Fed may actually pull off the balancing act of slowing the economy and hurting investment prices just enough to grind down inflation, but not so much as to cause a painful recession. That is still not a certainty, though.
The Fed has yanked its main interest rate to its highest level since 2001, up from virtually zero early last year, in hopes of getting inflation back down to 2%. The moves have already sent shockwaves through the financial system, with stocks still down from their peak in early 2021 and several high-profile U.S. bank failures shaking confidence earlier this year.
Even if it doesn’t hike rates any more, the Fed is likely to keep its main rate high for a while.
Still, the inflation report was unabashedly encouraging news for Wall Street. After the report’s release, Treasury yields in the bond market tumbled immediately as traders flooded into bets that the Fed won’t hike rates again. That also pushed up the expected timetable for the Fed’s first cut to rates, which can act like steroids for financial markets and provide oxygen across the financial system.
“Ain’t no reason to believe the last inflation mile will be the most difficult,” said EY Chief Economist Gregory Daco. “Slower consumer demand, reduced housing rents, lower profit margins, easing wage growth and restrictive monetary policy represent the ideal disinflationary combo heading into 2024.”
The yield on the 10-year Treasury tumbled to 4.45% from 4.64% late Monday. That’s a significant move for the bond market, particularly after the yield briefly topped 5% last month to reach its highest level since 2007.
Much attention will be on how overall prices for consumers rose 3.2% in October from a year earlier, a slowdown from last year’s peak above 9%. But for Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management, a more important indicator may be a figure buried under the surface related to housing costs.
That showed a meaningful deceleration, and Rosner said, “This should solidify the Fed on hold in December.”
Traders now see zero chance of an increase at the Fed’s next meeting on Dec. 13, down from a 14.5% probability just a day ago, according to data from CME Group.
The prospect of no more rate hikes reverberated across all kinds of financial markets.
The value of the U.S. dollar fell against many other currencies, further slowing its strong run since the summer, while the price of gold rose 0.8%. Higher interest rates tend to hurt gold because the metal, which pays its investors zero income, looks less attractive as an investment when bonds are paying higher yields.
Elsewhere on Wall Street, Home Depot rallied 5.3% after it reported stronger profit for the latest quarter than analysts expected. The Atlanta-based retailer, though, also said consumers are reticent to purchase big-ticket appliances, often bought on credit, which has grown very expensive as a result of higher interest rates.
Other big retailers, including Target and Walmart, will report their results later this week. They’re at the tail end of an earnings reporting season for the summer that has been better than analysts expected, with the first growth likely for S&P 500 companies in a year.
In stock markets abroad, indexes were mostly higher across Europe and Asia.
