US stocks extended a dramatic rally on Friday after a slowdown in CPI inflation data ignited the sharpest rally on Wall Street since early 2020.
The S&P 500 (^GSPC) rose 1%, while the tech-heavy Nasdaq Composite (^IXIC) gained 2%. The Dow Jones Industrial Average (^DJI) turned positive heading into the close after lagging the other indices for much of the session. Treasury yields were flat after their steepest one-day drop on Thursday in more than a decade.
A change in China’s Zero-COVID policy to reduce the amount of time travelers to the country spend in quarantine buoyed sentiment in early trading. Oil markets advanced as traders speculated the move could boost commodity demand, with West Texas Intermediate (WTI) futures rebounding nearly 3% to over $88 a barrel.
Meanwhile, on the economic data front, the preliminary reading of the University of Michigan consumer confidence survey for November fell to 54.7 from. 59.9 in October, the lowest since July.
All three major averages surged Thursday, each posting their biggest one-day gains since a spike from the COVID crisis more than two years ago. The outsized moves were catalyzed by lighter consumer price data in October that fueled bets that the Federal Reserve could stop tightening financial conditions as soon as early next year. The S&P 500, the Dow and the Nasdaq soared 5.5%, 3.7% — or 1,200 points — and 7.4%, respectively.
“Overall, the report suggests peak inflation may finally be behind us, although inflation may remain elevated for a while,” Sonia Meskin, head of US macro at BNY Mellon Investment Management, said in a note on Thursday. .
He noted that the figure supports the smaller 0.50% rate hike for December telegraphed at this month’s FOMC meeting, which investors are pricing in.
“However, it is also important not to over-emphasize a report for inflation and policy trajectory,” he added.
The Consumer Price Index (CPI) for October rose at an annual rate of 7.7% and increased 0.4% in the month. On a “basic” basis, which removes the volatile food and energy components of the report, prices increased at a rate of 6.3% year-on-year and 0.3% month-on-month.
Despite the restraint, many strategists say the excitement is premature, and Fed officials are still poised to tighten further after Chairman Jerome Powell said last month that policymakers still have “some ways.” move forward” to restore price stability, a message that his central bank colleagues have since also echoed in a series of public speeches.
“The extreme reliance on Fed data, combined with the fact that economic data will only show the labor market in real time and inflation slowing with a lag, increases the odds of an over-tightening crash,” he said. Gregory Daco, chief economist at EY Parthenon, in emailed comments. .
Meanwhile, DataTrek’s Nicholas Colas points to another reality: Although inflation trends go down once they peak and start to decline, as seen in 1970, 1974, 1980, 1990, 2001, and 2008, that shift to the low usually comes with recessions, and there are no exceptions to the rule.
The turmoil persisted in cryptoworld as the FTX debacle unfolds and the company announced on Friday morning that it would file for bankruptcy. Fallen crypto hero billionaire Sam Bankman-Fried has also resigned as CEO and he is reportedly under investigation by the US Securities and Exchange Commission as the exchange seeks a cash ransom from him. Bitcoin was trading around $16,500 on Friday morning.
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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