Stock market today: Dow soars as tech reigns supreme amid cooling inflation

© Reuters.

By Yasin Ebrahim

Investing.com -- The Dow rallied Thursday, as inflation dropped to a nine-month low, delivering a blow to Treasury yields and sparking a sea of the green in tech stocks amid hopes for the Federal Reserve to lean less hawkish on rate hikes.

The Dow Jones Industrial Average gained 3.7%, or 1,201 points, the Nasdaq was up 7.4%, and the S&P 500 gained 5.5%. 

The Labor Department said Thursday its consumer price index rose 0.4% last month, confounding expectations for a 0.6% rise. Core inflation, which is considered a more accurate gauge of inflation slowed to 0.3% from 0.6%, versus expectations for a 0.5% rise.

“The softening of core inflation in the October release is welcome news for the Fed,” Morgan Stanley said in a note. But cautioned that the optimism over slowing inflation could be unraveled should incoming data show labor markets remain tight.

The prospect of a less hawkish Fed pushed Treasury yields lower, with the 2-year Treasury yield, which is sensitive to Fed policy, falling to two-week lows, helping big tech surge.

Apple Inc (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT) were up more than 8%, Alphabet (NASDAQ:GOOGL) rose more than 7%, while Meta Platforms (NASDAQ:META) gained 10%.

But some on Wall Street aren't convinced that the tech rally will last, partly attributing the move higher to investor positioning, a day ahead of the expiry of options and highlighting that the Fed is still set to hike rates, albeit at a slower pace.

"I'm suspect of it in the short term," Brian Mulberry, client portfolio manager at Zacks Investment Management told Investing.com's Yasin Ebrahim in an interview on Thursday. "When all of these options expire tomorrow, we’ll get a better evaluation of where people actually think valuation should be. "

"At the end of the day, a less hawkish fed still means rates are going higher. Less hawkish is not a pivot...that's not how we're viewing this at this moment in time," Mulberry added.

Consumer stocks also reigned supreme with Amazon (NASDAQ:AMZN) leading the charge, up more than 12% on bets that slowing inflation pressure could ease the squeeze on consumers and encourage further spending.

Rising homebuilders, led by PulteGroup Inc (NYSE:PHM), played a role in the market melt-up as bets on smaller Fed rate hikes pushed mortgage rates back below 7%, spurring optimism for renewed demand for new homes. 

The average rate on the 30-year fixed plunged 60 basis points from 7.22% to 6.62%, Mortgage News Daily reported on bets that the smaller rate hikes could help 

In earnings news, Six Flags Entertainment New (NYSE:SIX) surged more than 13% despite reporting quarterly results that fell short of Wall Street estimates. The theme park operator, however, also said it had struck an agreement with investment firm H Partners allowing the latter to up its stake in the company to 19.9% from 14.9%.

Rivian Automotive Inc (NASDAQ:RIVN) left its production guidance intact and reported a narrower than expected loss, sending its share price up more than 17%.

Bumble (NASDAQ:BMBL), meanwhile, cut its losses to close 10% higher amid the broader market rally even after delivering softer guidance and third-quarter revenue that missed analyst estimates as the impact of a stronger dollar and the ongoing Russia-Ukraine war weighed.