US stock indices posted outsized gains at the open on Thursday as Wall Street applauded weaker-than-expected inflation data and monitored midterm election tallies.
The consumer price index (CPI) for October reflected a 7.7% increase from a year ago and a 0.4% increase from the previous month, better than Wall Street expected. Economists surveyed by Bloomberg called for a 7.9% annual increase and a 0.5% monthly gain.
The S&P 500 (^GSPC) rallied 3.4%, while the Dow Jones Industrial Average (^DJI) rose nearly 800 points, or 2.4%. The tech-heavy Nasdaq Composite (^IXIC) advanced a whopping 4.7%. Meanwhile, Treasury yields fell after the report, with the benchmark 10-year note falling below the 4% level.
“The first downside inflation surprise in several months will inevitably be met with a standing ovation from the stock market,” Principal Asset Management’s chief global strategist Seema Shah said in a note, adding, however, that Federal Reserve officials remain on track to proceed with rate hikes and a pause remains elusive.
“Let the market enjoy today, it still has another 100 basis points or so of adjustment to commiserate,” he said.
Elsewhere in the economic data, shadowed by the CPI, jobless claims rose last week but remained near record lows. Initial jobless claims, the most timely snapshot of the labor market, reached 225,000, an increase of 7,000 from the previous week, Labor Department data showed.
Thursday’s moves come after each of the major averages fell by at least 2% in the previous session due to midterm election uncertainty.
Republicans appeared poised to take control of the House but failed to sweep the polls to the extent expected, undermining optimism about a market-friendly gridlock that investors had anticipated.
Even as Wall Street awaits political clarity, with the vote count still underway, GLOBALT Investments Vice President and Senior Portfolio Manager Thomas Martin argued that markets are now laser-focused on one thing: the effect of the tightening of the central bank on inflation.
“So far, the effects appear to be not that different from zero,” he said in a note Wednesday night. “Yes, there have been data points hinting at some easing in prices, but they have failed to muster sustainable momentum.”
Until the latest policy-setting meeting earlier this month, traders were expecting Federal Reserve officials to relax their monetary tightening plans as economic data softens. But Chairman Jerome Powell has dismissed the idea that a change in the Fed’s path is imminent, with inflation and payrolls still firmly elevated.
“Recent inflation data has come back higher than expected,” Powell said. “Price pressures remain evident across a wide range of goods and services.”
The renewed risk-off sentiment on Wednesday was also stoked by the rapid collapse of FTX, the cryptocurrency exchange run by billionaire Sam Bankman-Fried. Concerns over the possibility of FTX insolvency after rival Binance pulled out of an emergency bailout deal to buy the firm caused havoc in crypto markets, with nervousness spreading to other risk assets. Bitcoin (BTC-USD) hovered around $16,300 on Thursday morning.
On the corporate front, shares of ZipRecruiter (ZIP) jumped 17% after the online job market raised its outlook for the full year and approved a $200 million increase in its share buyback program.
Shares of Bumble (BMBL) erased a 15% drop in extended trading after revealing third-quarter earnings that missed Wall Street estimates and revised down guidance for the current period due to headwinds from currencies and Russia’s war in Ukraine.
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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