Stocks jumped on Tuesday after a softer-than-expected consumer price report for November raised expectations that inflation had peaked.
The Dow Jones Industrial Average rose 521 points, or 1.5%, in a surprise move right after it hit the inflation figures. The S&P 500 rose 2.3%, while the Nasdaq Composite rose 3.2%.
The The consumer price index increased by only 0.1% from the previous monthand increased by 7.1% over the previous year, the Labor Department reported on Tuesday. Economists polled by Dow Jones had expected a monthly increase of 0.3% and a 7.3% increase for the 12-month period. Excluding volatile food and energy prices, core CPI rose 0.2% m/m and 6% y/y, compared to related estimates of 0.3% and 6.1%.
“That was a huge surprise and the markets are reacting accordingly,” said Steve Sosnick, chief strategist at Interactive Brokers. “Today is the day the whole bullish scenario works out. Yields are lower in the inflation story. Equities like the Fed’s less restrictive story and the dollar is weaker which helps stocks as well.”
Tuesday’s inflation report could play a major role in the Fed’s next rate hike decision expected at the close of its two-day policy meeting on Wednesday. Traders are largely pricing in a 50 basis point increase, which is a slight drop from the previous four highs. (1 basis point equals 0.01%).
This forecast is unlikely to change due to Tuesday’s CPI report. The lighter numbers could mean the Fed won’t end up raising interest rates as high in the future, giving the economy a fighting chance to avoid a recession in 2023.
“Whether or not it will influence Fed policy tomorrow is an open question,” Sosnick added. “A reaction like that would potentially say that number will affect the Fed. If not their decision on interest rate, which is maybe 50 basis points, but maybe you get some movement in the outer months.”
The 10-year Treasury yield fell about 15 basis points after the CPI report fell below 3.5%. Technology stocks, which have been hit hard by rising inflation and rates in 2022, led the gains on Tuesday. appleAnd the MicrosoftAnd the Amazon And the the alphabet All jumped more than 3%. Netflix It also added 3%. Tesla profit of approximately 3%.
Gains were broad on Tuesday, with 2,630 stocks listed on the New York Stock Exchange gaining, while only 190 fell. In other words, 14 stocks listed on the New York Stock Exchange traded higher for every decline.
Within the S&P 500, 462 stocks traded higher – another sign of the broadening of the market.
“Web maven. Infuriatingly humble beer geek. Bacon fanatic. Typical creator. Music expert.”