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Futures tied to the Dow Jones and other leading indexes climbed significantly after reports suggested that inflation may be slowing.
On Tuesday, stock futures tied to the Dow Jones and other major indexes rose significantly on speculations that inflation is declining.
Dow futures added 313 points, or 0.9%, while the S&P 500 futures rose 1.5%, with Nasdaq-100 futures also gaining 2.5%. Amid the new rally in stocks, there was also a less-than-expected increase in wholesale prices for October. Furthermore, the producer price index, a barometer for wholesale inflation, rose 0.2% in October compared to analysts’ expectations of a 0.4% increase.
October’s produce price index also rose 8% on a year-over-year (YoY) basis compared to an 8.4% increase in September. In addition, the latest price index is some way off the record high of 11.7% recorded in March.
Commenting on the welcome development, which builds on last week’s favorable consumer price index data, Jeremy Siegel, a finance professor emeritus at the University of Pennsylvania’s Wharton School of Business, stated:
“I think this moves up the [Fed] pivot. All we need is for them to recognize what prices on the ground are actually doing, and they are not going up. They’re probably going to go 50 basis points, but that should be the absolute pause.”
Furthermore, Siegel also stated that the yield on the 10-year Treasury bill is likely at its peak, and the S&P should not retest 2022’s previous lows.
Huw Roberts, head of analytics at Quant Insight, also weighed in on the recent equity rally, saying:
“After last week’s CPI undershoot prompted a huge equity rally & reversal in the Dollar, the critical topic for markets this week will be the Fed’s reaction.”
Beyond Dow Futures Positive Development, Retail Stocks Rise amid Waning Inflation
Notwithstanding the Dow Jones development, the share value of some companies also increased on news that inflation may be dwindling. For example, multinational retail corporation Walmart (NYSE: WMT) saw its stock jump in premarket trading after the company beat analysts’ earnings and revenue estimates. The positive outcome from its higher-than-expected earnings also saw Walmart deliver a boosted full-year guidance.
Home Depot (NYSE: HD), another multinational sales corporation, reported good earnings but retained its original full-year guidance. However, unlike Walmart, the shares of the popular home improvement retailer declined marginally.
In addition to a 0.2% monthly rise, the latest producer price index rose 5.4% on the year – minus food, energy, and trade services. Furthermore, excluding food and energy, the price index remained flat in October and was up 6.7% on the year.
A significant factor in the inflation slowdown was a 0.1% decline in the index’s services component. This constituted the first outright reduction in that measure in two years. In addition, final demand for goods climbed 0.6%, representing the biggest gain since June, and could be attributable to the energy rebound. For instance, there was an increase of 5.7% in the price of gasoline.
Until this point, the Federal Reserve has been hiking interest rates to rein in inflation. The US apex bank is already up by a cumulative 3.75 percentage points after increasing rates six times this year. This figure also marks its highest level in 14 years.