As inflation data cooled down the markets reacted with a very strong rally. Ath the same time, the Treasury Yields also plunged.
On Thursday, November 10, Wall Street rejoiced after October’s reading of consumer prices showed that inflation has already peaked. All three big indices registered a sharp rally yesterday. The Dow Jones Industrial Average (INDEXDJX: .DJI) jumped by 3.7% or 1,201 points ending the trading at 33,715.37. This has been one of the biggest single-day gains for the index over the last few months.
Similar to the Dow Jones, the S&P 500 also jumped 5.5% or 207 points ending the trading at 3,956 levels. This has been the index’s biggest rally since April 2020. Also, the tech-heavy Nasdaq Composite (INDEXNASDAQ: .IXIC) delivered a stellar performance with 7.5% gains or 700 points ending the trading at 11,114 levels.
As said, the reason behind this rally was the cooling down of inflation. The Consumer Price Index (CPI) for the last month jumped just 0.4% standing at 7.7%. This is a cool-down from the last month’s reading of 8.2% annual pace. Also, October saw the lowest annual increase in CPI since the beginning of 2022.
According to the Dow Jones economists, they were expecting a jump of 0.6% and a reading of 7.9% inflation last month. While excluding food and energy costs, the core CPI jumped by just 0.3% standing at 6.3% on an annual basis. Speaking on the development, Exencial Wealth’s Tim Courtney said:
“Interest rates are still running everything in markets. With today’s CPI number coming down, the market is now betting pretty clearly that they think the interest rate [rises] are coming close to an end. So, you see those interest rate sensitive stocks doing really, really well.”
Treasury Yields Head Lower
Just as Wall Street witnessed a massive rally on Thursday, Treasury Yield plunged with the CPI report. The 10-year Treasury Yields dropped 30-basis points to 3.81%. Several traders are confident that with the current inflation reading, the Federal Reserve would slow its aggressive tightening of monetary policy.
The yields for a 2-year Treasury also dropped by 30 basis points to 4.32%. On the other hand, the US Dollar tumbled to its worst since 2009 against other currencies.
The 7% rally in Nasdaq was supported by a sharp rally in tech stocks. These stocks jumped the most after being hit hard by inflation and rising interest rates. Amazon.com Inc (NASDAQ: AMZN) jumped by a solid 12.2% while Apple Inc (NASDAQ: AAPL) and Microsoft Corp (NASDAQ: MSFT) each gained over 8%. The share price of Meta Platforms (NASDAQ: META) also jumped by over 10%.
But Matthew Graham, chief operating officer of Mortgage News Daily, believes that the interest rates won’t move dramatically lower anytime soon.“This is the best argument to date that rates are done rising, but confirmation requires next month’s CPI to tell the same story,” he said.
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