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Wall Street rally lifts Nasdaq 20% from low as inflation fears ebb

Economy Aug 10, 2022 06:55PM ET
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© Reuters. Traders work on the trading floor at the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S., August 8, 2022. REUTERS/Andrew Kelly
 
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By Herbert Lash and Bansari Mayur Kamdar

NEW YORK (Reuters) - Wall Street surged on Wednesday, putting the Nasdaq more than 20% above its June low, after U.S. inflation slowed more than expected in July and raised hopes the Federal Reserve will become less aggressive on interest rates hikes.

A sharp drop in the cost of gasoline helped the U.S. Consumer Price Index stay flat last month after advancing 1.3% in June, the Labor Department said. The CPI rose by a less-than-expected 8.5% over the past 12 months after a 9.1% rise in June.

The rally came in the wake of the first notable sign of relief for Americans who have watched inflation steadily climb. The Nasdaq now is up 20.8% since bottoming but still needs to pass its prior peak in November to confirm a new bull market.

GRAPHIC-Inflation set to ease, but by how much?, https://graphics.reuters.com/USA-ECONOMY/INFLATION/gkvlgodjjpb/chart.png

Fed funds futures traders are now pricing in only a 43.5% chance that the U.S. central bank hikes rates by 75 basis points when it meets in September, compared with 68% before the data. A 50 basis point hike is seen as a 56.5% probability.

"For the market, it's sort of a Goldilocks scenario right now because you have the labor market holding up and inflation potentially starting to come down. That is what a soft landing would look like," said Shawn Snyder, head of investment strategy at Citi U.S. Wealth Management in New York.

But one month of slowing inflation is not enough for the Fed to send an all-clear signal, Snyder said.

The rally on Wall Street was broad-based, with all 11 S&P 500 sectors rising in a sea of green. Growth stocks rose more than value, while Dow transports, small caps and semiconductors also rose.

The Dow Jones Industrial Average rose 535.1 points, or 1.63%, to 33,309.51, while the S&P 500 gained 87.77 points, or 2.13%, to 4,210.24 and the Nasdaq Composite added 360.88 points, or 2.89%, to 12,854.81.

It was the biggest single-day gain for both the Nasdaq and S&P 500 in two weeks, and for the Dow in three weeks. It was the highest close for the S&P 500 since early May.

"(Inflation at) 8.5% is still very high, but there is optimism that perhaps June was the peak," said Randy Frederick, vice president of trading and derivatives for Charles Schwab (NYSE:SCHW).

Producer prices data for July on Thursday along with August inflation and employment data for release next month could alter the course of the Fed again, Frederick said.

The Fed has hiked its policy rate by 225 basis points since March despite fears the sharp rise in borrowing costs could tip the U.S. economy into a recession.

The slowing of inflation was the first "positive" reading on price pressures since the Fed began tightening policy, Chicago Fed President Charles Evans said, even as he signaled he believes the Fed has plenty more work to do.

After a rough start to the year, the benchmark S&P 500 is up nearly 15% from mid-June lows, largely on expectations the Fed will be less hawkish than anticipated in its efforts to provide a soft landing for the economy as it fights to curb inflation.

But the S&P 500 is 12% below its all-time high in January, having been in a bear market since then.

The CBOE Volatility index, Wall Street's fear gauge, fell below the 20.00 level to close at more than a four-month low.

High-growth and megacap technology stocks, whose valuations are vulnerable to rising bond yields, rose as Treasury yields fell sharply across the board. Apple Inc (NASDAQ:AAPL), Alphabet (NASDAQ:GOOGL) Inc, Amazon.com Inc (NASDAQ:AMZN) and Microsoft Corp (NASDAQ:MSFT) all rose more than 2% each. [US/]

Economy-sensitive banks advanced 2.7%, with Goldman Sachs Group Inc (NYSE:GS) and Morgan Stanley (NYSE:MS) climbing about 3% each.

"Banks have underperformed and are now getting bid," said Thomas Hayes, managing member of Great Hill Capital LLC, adding that investors are chasing the laggards that have not participated in the rally since June lows.

Tesla (NASDAQ:TSLA) Inc rose 3.9% after Elon Musk sold $6.9 billion worth of shares in the electric vehicle maker to finance a potential deal for Twitter Inc (NYSE:TWTR) if he loses a legal battle with the social media platform. Twitter gained 3.7%.

Meta Platforms Inc jumped 5.8% after the Facebook (NASDAQ:META) parent said on Tuesday it had raised $10 billion in its first-ever bond offering.

Volume on U.S. exchanges was 11.33 billion shares, compared with the 10.98 billion average for the full session over the past 20 trading days.

Advancing issues outnumbered declining ones on the NYSE by a 5.69-to-1 ratio; on Nasdaq, a 3.34-to-1 ratio favored advancers.

The S&P 500 posted five new 52-week highs and 29 new lows; the Nasdaq Composite recorded 64 new highs and 54 new lows.

Wall Street rally lifts Nasdaq 20% from low as inflation fears ebb
 

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Comments (42)
John Berry
John Berry Aug 11, 2022 8:02AM ET
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So much for that recession everyone and their brother was talking about. 🤡
Charles Darwin
Charles Darwin Aug 11, 2022 8:02AM ET
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Winter is coming
River Sun
River Sun Aug 11, 2022 6:34AM ET
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The crude is still at 5 year high, so let’s see if it can go down to $80 or less otherwise go up again to $100+ this coming month
JJ JJ
JJ JJ Aug 11, 2022 6:23AM ET
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All crooks.
Kris Jay
Kris Jay Aug 10, 2022 8:37PM ET
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fears?  Inflation is real, still above 8%.  why the market thinks that is good is hard to understand.  Fed is communicating poorly I guess that they will "ease" and revert back to 0% interest rates on the slightest drop in inflation.   The other message they give which is more accurate is that "we'll be hiking rates until inflation is below 2%" that tells me we have many more hikes to come given 150bps only made a 0.5% change.
nick cage
nick cage Aug 10, 2022 8:29PM ET
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The fed doesn't care about what dropped in this report. Their job isn't protecting Rich white liberals. watch food, labour and housing
P Jackson
P Jackson Aug 10, 2022 8:13PM ET
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Unprofessinal article.
Hungry Fish
Hungry Fish Aug 10, 2022 4:19PM ET
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Loudest gun noise, then louder gun noise, then loud gun noise -> finally, deaf ears fear no gun noises.
Dave Jones
Dave Jones Aug 10, 2022 4:19PM ET
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Inflation is still going up. Let's not kid ourselves.
nick cage
nick cage Aug 10, 2022 4:19PM ET
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just not on the stuff rich white women buy. Got to keep the leather purse prices down or Biden will lose. Groceries through the roof
Matt Kay
Matt Kay Aug 10, 2022 3:40PM ET
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high inflation is good for stonks. low inflation is good for stonks..... STONKS!
Mitchel Pioneer
Mitchel Pioneer Aug 10, 2022 2:22PM ET
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Will the BIGGEST INVESTMENT JOKE IN THE WORLD tank "in late trade" and give up all of its manufactured "gains," or will the magic show continue through the close?
First Last
First Last Aug 10, 2022 2:22PM ET
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Why are you asking us?  You're the one who claims the market is predictable.
Brad Albright
Brad Albright Aug 10, 2022 2:22PM ET
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Either way, I look for your explanation that it is proof the market is rigged.
Jay Garrelts
Jay Garrelts Aug 10, 2022 2:22PM ET
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Brad Albright 90% of stocks are owned by those in the top 10% of wealth
nick cage
nick cage Aug 10, 2022 2:22PM ET
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Brad has no idea what he is saying. He just repeats MSNBC. Doesn't understand any of it
 
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