Dow Jones Soars 1,200 Points On Inflation Report: Why The Market Rally May Have Room To Run

Dow Jones futures were little changed overnight, along with S&P 500 futures and Nasdaq futures.

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The stock market rally surged Thursday following a cooler-than-expected CPI inflation report, with the Dow Jones running up 1,198 points. Headline and core price gains were lower than expected, bolstering the case for slower Fed rate hikes. Treasury yields and the dollar plunged.

If inflation continues to ease, the Fed could choose to end rate hikes sooner than Fed chief Jerome Powell suggested last week.

A lot of the big moves were in beaten-down stocks. Apple (AAPL), Microsoft (MSFT), Google parent Alphabet (GOOGL), Facebook-parent Meta Platforms (META), Amazon.com (AMZN) and Tesla (TSLA) were all big winners Thursday, but MSFT stock was the only one to move above the 50-day line. Nvidia (NVDA), which has a higher market cap than META stock now, spiked after already reclaiming the 50-day line, but still needs a lot of work.

Many crashing cloud software stocks boasted double-digit gains Thursday. Digital Turbine (APPS) erupted for a 61% gain following earnings, but that’s not even a two-month high.

Still, investors should definitely consider adding more exposure and be looking for stocks setting up.

There weren’t many actionable stocks Thursday, however. But GlobalFoundries (GFS), Enphase Energy (ENPH), Griffon (GFF), Builders FirstSource (BLDR) and General Motors (GM) all flashed various buy signals.

GM stock was added to SwingTrader and was Thursday’s IBD Stock Of The Day. ENPH stock is on the IBD Leaderboard watchlist and is on the IBD 50 list.

Dow Jones Futures Today

Dow Jones futures tilted higher vs. fair value. S&P 500 futures and Nasdaq 100 futures were little changed.

The bond market will be closed Friday for Veterans Day. U.S. stock markets will open as usual.

Bitcoin, which got above $18,000 at one point Thursday after crashing to a two-year low below $16,000 on Wednesday afternoon. But the cryptocurrency faded to about $17,000 Thursday night. Crypto lender BlockFi said that it was pausing withdrawals in the wake of FTX nearing collapse. Earlier this year, FTX reached a deal to acquire BlockFi.

Beijing reported the most Covid cases in over a year as rising infections nationwide spur fresh lockdowns. China’s new leaders urged more-targeted, “decisive” restrictions to control the spread.

Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.

Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live

Stock Market Rally

The stock market rally started strong and remained so throughout Thursday, closing at session highs.

Dow futures spiked before the open on the surprisingly tame CPI inflation report. October consumer prices rose 0.4%, or 0.3% excluding food and energy. The CPI inflation rate fell to 7.7%, the lowest since January. Core inflation pulled back to 6.3% vs. views to stay at a 40-year-high 6.6%.

Bulls cheered and sighed after finally getting a positive inflation reading.

The Dow Jones Industrial Average jumped 3.7% in Thursday’s stock market trading. The S&P 500 index 5.5%. The Nasdaq composite vaulted 7.35%. The small-cap Russell 2000 leapt 6.1%.

The 10-year Treasury yield plummeted 32 basis points to 3.83%, the lowest in a month. The dollar suffered its biggest decline in several years, continuing sharp losses over the past week.

Markets now see an 81% chance of a 50-basis point Fed rate hike in December. Before the CPI inflation report, there was still a solid chance of a fifth-straight 75-basis-point increase. Notably, there’s now a 50-50 chance for just a quarter-point Fed rate hike in February.

U.S. crude oil prices rose 0.6% to $86.47 a barrel. Natural gas popped 6.4%.

Megacap Stocks

Apple stock spiked 8.9%, rebounding from its worst close in nearly four months. META stock jumped 10.25%, continuing a mini-run from bear-market lows amid big job and other cost cuts. Amazon stock leapt 12.2% from Wednesday’s 30-month lows as the e-commerce giant announced a cost-cutting review.

Microsoft stock leapt 8.2%, moving above its 50-day. Google stock popped 7.6%, but remains well below its 50-day line.

Tesla stock bounced 7.4%, but it was a still an inside day after tumbling to a two-year low on Wednesday.

Nvidia stock surged 14.3%, continuing a rebound that started on Oct. 13. Nvidia earnings are due Nov. 16.

ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) gained 3.1%. The iShares Expanded Tech-Software Sector ETF (IGV) soared 9.1%, with MSFT stock a major component. The VanEck Vectors Semiconductor ETF (SMH) screamed 10.2% higher. NVDA stock is a big holding.

SPDR S&P Metals & Mining ETF (XME) popped 5.5% and the Global X U.S. Infrastructure Development ETF (PAVE) 5.65%. U.S. Global Jets ETF (JETS) ascended 4.9%. SPDR S&P Homebuilders ETF (XHB) raised the roof with a 10.3% gain. The Energy Select SPDR ETF (XLE) rose 2.2% and the Financial Select SPDR ETF (XLF) advanced just over 5%. The Health Care Select Sector SPDR Fund (XLV) climbed 2.5%.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) charged 14.5% higher and ARK Genomics ETF (ARKG) 11.1%. Tesla stock is a major holding across Ark Invest’s ETFs.

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Market Rally Analysis

The stock market rally had a massive gain on the CPI inflation report. The S&P 500 and Russell 2000 vaulted above their 50-day moving averages, with the former clearing recent highs and the latter just shy of its 200-day moving average. The Dow Jones, which has been leading this uptrend, jumped from its 200-day line to its best levels since the August peaks.

The Nasdaq, the clear laggard in the market rally so far, jumped to move past its 50-day line. Amazon and a lot of beaten-down megacaps and cloud stocks led the way, while Nvidia and other chips continued their recent surge, but mostly below buy areas.

Thursday’s action was a subsequent follow-through day on all the major indexes, with big NYSE and Nasdaq volume gains. That provides more confidence in the stock market rally.

The CPI inflation report was just one data point, but it was what the Fed wanted and needed to see. Notably, there will be a few weeks before the next wave of Fed-critical reports are out. That suggests a favorable backdrop for the market rally, at least during that span.

A positive follow-up would be the Nasdaq moving decisively above the 50-day line, clearing its October highs just above 11,200. The S&P 500 pushing above the 200-day would be a very strong signal.

Why This IBD Tool Simplifies The Search For Top Stocks

Leading Stocks

There weren’t a lot of leading stocks in position on Thursday. Some strong names look extended, while Thursday’s big winners were mostly battered techs like Google that need a lot of repair work.

It’s not clear which groups will lead the market rally. But there are a lot of interesting groups and sectors.

Medicals such as biotechs and health insurers, which have been market rally leaders, sat out Thursday’s big gains or fell back with riskier growth names in favor. Is that just a blip?

Defensive names had a rough outing, such as Hershey (HSY) and other food product stocks.

A wide range of housing-related stocks, including builders, suppliers and retailers, are clearing bases or moving above long-term moving averages or trendlines. That includes D.R. Horton (DHI), Tempur-Sealy (TPX) and BLDR stock.

Some other retailers, along with several restaurants and some consumer plays, are showing strength, from Crocs (CROX) to Wingstop (WING) to GM stock. Some financials, lithium, solar, agricultural and steel stocks are looking good as well, including Steel Dynamics (STLD), Albemarle (ALB), CF Industries (CF), Charles Schwab (SCHW) and ENPH stock.

Some infrastructure firms are in or near buy zones, including Quanta Services (PWR).

Energy stocks, which didn’t do much on Thursday, may continue to lead.

Networking stocks are looking robust, including Digi International (DGII). A few chip names are looking interesting as the sector rebounds after a long slide. That includes GFS stock, which is modestly above early entries.

But for megacaps such as Apple stock, Microsoft and Tesla, it could be some time before they lead. The same goes for cloud software, with the risk that some may not recover for years, if ever.

Time The Market With IBD’s ETF Market Strategy

What To Do Now

The stock market rally showed strength on Thursday, and there is a plausible story that the uptrend has legs after the October inflation report. But for now it’s just a story.

Ultimately, investors should focus on what the market is doing now, by following the action of the major indexes and leading stocks.

That’s signaling it’s time to increase exposure, but not rush in. If this market uptrend has legs, there will be plenty of time to be heavily invested.

The limited number of actionable stocks Thursday was one reason to not buy heavily. Investors could choose to buy a broad market or sector ETF, such as SPY or SMH.

But there are a lot of stocks and sectors that are looking interesting. Investors should have their watchlists up to date.

Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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