Dow Jumps 900 Points On Inflation Optimism — But It’s ‘Yet Another Triumph Of Hope Over Reality,’ One Analyst Says

Topline

Stocks skyrocketed early Thursday after the latest inflation reading revealed the Federal Reserve’s battle to bring down prices is finally bearing fruit, though experts say it’s merely the first step in the Fed’s lengthy odyssey to tame inflation.

Stocks skyrocketed after the latest inflation report.

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Key Facts

The Dow Jones Industrial Average jumped 2.67%, or 880 points, while the S&P 500 climbed 4.3% and the tech-heavy Nasdaq soared 5.8%.

That surge follows the Labor Department’s release of last month’s consumer price index data, revealing prices rose 7.7% on an annual basis, below economist estimates and the smallest 12-month increase since January.

That’s apparent evidence that the Fed’s relentless interest rate hikes are effectively slowing the U.S.’ worst bout of inflation in four decades.

The strong CPI report proved a strong “first mile” in the Fed’s “marathon” against inflation, Rick Rieder, BlackRock’s chief investment officer for global fixed income, wrote in a Thursday note, cautioning “today’s data is far from the finish line for the Fed, and it will be a true marathon to see inflation closer to target.”

The bond market also rallied, with 10-year U.S. Treasury yields falling 29 basis points to 3.86%, its lowest level in a month.

Technology giants drove, with Apple, Amazon, Alphabet, Meta and Microsoft each spiking 6% or more.

Contra

John Lynch, Comerica Wealth Management’ chief investment officer, threw cold water on Thursday’s stock rally, proclaiming it “yet another triumph of hope over reality.” Lynch cited the “prolonged battle against inflation” ahead with still-elevated housing and energy costs and sticky wages.

Key Background

Massive market movement typically follows CPI releases, with the Dow suffering its worst daily performance of 2022 after September’s reading, falling 4%, and gaining 3% following last month’s reading. The Fed has raised the federal funds rate by 75 basis points at its last four meetings, but investors are hopeful the Fed will embrace a less hawkish monetary policy as soon as next month. There’s an 81% chance the next rate hike will be only 50 basis points, according to CME Group’s closely-watched FedWatch tool.

Surprising Fact

Nasdaq’s 5.8% gain is its largest daily climb since April 2020.

Tangent

Cryptocurrencies also rallied Thursday, with bitcoin gaining 6%, paring some of this week’s massive losses following the collapse of crypto exchange FTX. Bitcoin is still down more than 15% since Sunday.