Stocks rallied Tuesday after a weaker-than-expected consumer price report for November raised expectations of a peak in inflation.
The Dow Jones Industrial Average rose 521 points, or 1.5%, in a sudden jump after the inflation data hit. The S&P 500 rose 2.3 percent and the Nasdaq Composite gained 3.2 percent.
The U.S. Department of Labor announced on Tuesday that the consumer price index rose only 0.1% month-on-month and 7.1% year-on-year. Economists polled by Dow Jones had expected a monthly increase of 0.3% and a 12-month increase of 7.3%. Excluding volatile food and energy prices, the so-called core CPI rose 0.2 percent for the month and 6 percent for the year, compared with 0.3 percent and 6.1 percent, respectively.
“It was a big surprise and the market is reacting accordingly,” said Steve Sosnick, chief strategist at Interactive Brokers. “Today is a day where the whole bullish scenario is at play. The inflation story has lower yields. Stocks like it The story of a less restrictive Fed and a weaker dollar also help stocks.”
Tuesday’s inflation report is likely to play a key role in the Fed’s decision on the next rate hike expected at the end of Wednesday’s two-day policy meeting. Traders generally expect a 50 basis point hike, a slight drop from the previous four hikes. (1 basis point equals 0.01%.)
However, that expectation is unlikely to change due to Tuesday’s CPI report. A lower number could mean the Fed ends up not raising interest rates in the future, giving the economy a chance to avoid a recession in 2023.
“Whether it will affect Fed policy tomorrow is an open question,” Sosnick added. “A reaction like this might suggest that number is going to affect the Fed. If it wasn’t for their rate decision, it might be 50 basis points, but maybe you’d move around in the outer months.”
After the CPI report, the 10-year Treasury yield fell nearly 15 basis points to below 3.5%. Technology stocks, hit hardest by rising inflation and interest rates through 2022, led gains on Tuesday. apple, Microsoft, amazon and letter Both rose more than 3%. Netflix It also increased by 3%. tesla up nearly 3%.