NEW YORK: Wall Street surged on Wednesday (Aug 10, putting the Nasdaq more than 20% above its June low, after US inflation slowed more than expected in July and raised hopes the Federal Reserve (Fed) will become less aggressive on interest rates increases.
A sharp drop in the cost of petrol helped the US Consumer Price Index (CPI) stay flat last month after advancing 1.3% in June, the Labor Department said. The CPI rose by a less-than-expected 8.5% over the past 12 months after a 9.1% rise in June.
The rally came in the wake of the first notable sign of relief for Americans who have watched inflation steadily climb. The Nasdaq now is up 20.8% since bottoming but still needs to pass its prior peak in November to confirm a new bull market.
Fed funds futures traders are now pricing in only a 43.5% chance that the US central bank raises rates by 75 basis points when it meets in September, compared with 68% before the data. A 50 basis point increase is seen as a 56.5% probability.
“For the market, it’s sort of a Goldilocks scenario right now because you have the labour market holding up and inflation potentially starting to come down. That is what a soft landing would look like,” said Shawn Snyder, head of investment strategy at Citi US Wealth Management in New York.
But one month of slowing inflation is not enough for the Fed to send an all-clear signal, Snyder said.
The rally on Wall Street was broad-based, with all 11 S&P 500 sectors rising in a sea of green. Growth stocks rose more than value, while Dow transports, small caps and semiconductors also rose.
The Dow Jones Industrial Average rose 535.1 points, or 1.63%, to 33,309.51, while the S&P 500 gained 87.77 points, or 2.13%, to 4,210.24 and the Nasdaq Composite added 360.88 points, or 2.89%, to 12,854.81.
It was the biggest single-day gain for both the Nasdaq and S&P 500 in two weeks, and for the Dow in three weeks. It was the highest close for the S&P 500 since early May.
“(Inflation at) 8.5% is still very high, but there is optimism that perhaps June was the peak,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab.
Producer prices data for July on Thursday along with August inflation and employment data for release next month could alter the course of the Fed again, Frederick said.
After a rough start to the year, the benchmark S&P 500 is up nearly 15% from mid-June lows, largely on expectations the Fed will be less hawkish than anticipated in its efforts to provide a soft landing for the economy as it fights to curb inflation.
But the S&P 500 is 12% below its all-time high in January, having been in a bear market since then.
The CBOE Volatility index, Wall Street's fear gauge, fell below the 20.00 level to close at more than a four-month low.
High-growth and megacap technology stocks, whose valuations are vulnerable to rising bond yields, rose as Treasury yields fell sharply across the board. Apple Inc, Alphabet Inc , Amazon.com Inc and Microsoft Corp all rose more than 2% each.
Economy-sensitive banks advanced 2.7%, with Goldman Sachs Group Inc and Morgan Stanley climbing about 3% each.
Tesla Inc rose 3.9% after Elon Musk sold US$6.9 billion worth of shares in the electric vehicle maker to finance a potential deal for Twitter Inc if he loses a legal battle with the social media platform. Twitter gained 3.7%.
Meta Platforms Inc jumped 5.8% after the Facebook parent said on Tuesday it had raised US$10 billion in its first-ever bond offering. – Reuters
