A lower October PPI suggested that inflation is abating and has triggered a rise in the S&P 500, other leading averages, and retail stocks.
The S&P 500 ended Tuesday higher on the back of another rally driven by additional reports that inflation could be winding down. The commonly-followed equity index concluded the day at 3,991.73 points, representing an increment of 0.87%. Additionally, the Dow Jones Industrial Average closed at 33,592.92, implying a 56.22 point, or 0.17% climb, while the Nasdaq Composite rose 1.45% to close at 11,358.41.
The initial rally of all three leading indexes began when October’s wholesale-measuring produce price index (PPI) showed a less-than-expected 0.2% increase. This compares favorably with the Dow Jones’ consensus estimate of 0.4% and suggests that inflationary pressure may be waning. Speaking on the produce price index recorded last month, Mike Loewengart who heads model portfolio construction at Morgan Stanley’s Global Investment Office, stated:
“The PPI read certainly adds more fuel to the fire for those who feel we may finally be on a downward inflation trend. The market embraced last week’s consumer downtick and today’s initial reaction seems to be more of the same.”
Ross Mayfield, an investment strategy analyst at multinational independent investment bank Baird, also weighed in. According to Mayfield, the narrative that inflation is already at its peak is beginning to gain traction. However, he also suggested that the possibility of a Fed pivot remains high. In Mayfield’s own words:
“There will be trepidation at the central bank given their credibility concerns and desire to avoid the mistakes of the 1970s (i.e., stop and start policy that prolonged the inflationary spell). But the crumbs are already being laid for a deceleration in pace of tightening heading into 2023.”
Oil Glitch not Enough to Slow Down Major Indexes Momentum
Despite the perceived decline in inflation, the S&P 500 and the Dow briefly dipped into negative territory in Tuesday’s afternoon trading session. This development occurred after crude oil prices suddenly increased – although prices later eased.
Overall, stocks ended the day higher for the third time in the last four days. In addition, all the major indexes are on course for monthly gains. For instance, the S&P 500 is up 3.1%, while the tech-laden Nasdaq is up 3.4% for November. In addition, the Dow gained 2.6% in the same period.
Besides S&P 500, Retail Stocks also Rise Higher on Favorable Inflation Optics
Retail stocks are also trading higher on the positive inflationary report, with shares of Walmart (NYSE: WMT) jumping after beating revenue and earnings estimates. This positivity also led to the Arkansas-based supermarket chain providing a boosted full-year guidance. Elsewhere, Home Depot (NYSE: HD) also reported solid results but retained its original full-year guidance. Shares of the Atlanta-based home improvement retailer rose 1.6%.
Baird’s Mayfield also commented on the retail situation, saying that retail earnings have a “pretty decent start”. He also stated that this positive optic could underscore the larger consensus of “consumer resilience and labor market tightness.” In addition, Mayfield added that earnings are critically important and could influence the next phase for equities.
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