The CPI report came in much better than expected finally giving the market hope that inflation is starting to come down and that there may very well be a soft landing. The 12-month inflation rate had been running at 9.1% in June and is now substantially reduced to 8.5%, and the forecast for a ¾ point rate hike in September has now been lowered from 68% to 43.5.  All in one day! All the indexes had big gains with the S&P now up 15% from the June low and need only climb another 12% to once again meet the record January high. It was the first positive reading on inflation since the Fed started the rate hikes and the VIX has also fallen substantially now under 20 and at a four month low.  Volume was a little above average at 11.3 billion. 

Wed  August 10, 2022  4:54 PM

Wall Street rallies as cooling inflation eases rate hike fears

By Herbert Lash and Bansari Mayur Kamdar

DJ: 32,774.41  -58.13        NAS: 12,493.93  -150.53       S&P: 4,122.47 -17.59       8/9

DJ: 33,309.51  +535.10     NAS: 12,854.81  +360.88       S&P: 4,210.24  +87.77     8/10

NEW YORK, Aug 10 (Reuters) - The Nasdaq and S&P 500 surged more than 2% on Wednesday after data showed U.S. inflation slowed more than expected in July and raised hopes the Federal Reserve will become less aggressive on interest rates hikes.  A sharp drop in the cost of gasoline helped the U.S. Consumer Price Index 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. read more  The data was the first notable sign of relief for Americans who have watched inflation steadily climb the past two years.

Fed funds futures traders are now pricing in only a 43.5% chance that the U.S. central bank hikes rates by 75 basis points when it meets in September, compared with 68% before the data. A 50 basis point hike is seen as a 56.5% probability. read more  "For the market, it's sort of a Goldilocks scenario right now because you have the labor 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 U.S. 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 (.IGX) rose more than value (.IVX), while Dow transports (.DJT), small caps (.RUT) and semiconductors (.SOX) also rose. 

 

The Dow Jones Industrial Average (.DJI) rose 535.1 points, or 1.63%, to 33,309.51, while the S&P 500 (.SPX) gained 87.77 points, or 2.13%, to 4,210.24 and the Nasdaq Composite (.IXIC) 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.  The Fed has hiked its policy rate by 225 basis points since March despite fears the sharp rise in borrowing costs could tip the U.S. economy into a recession.  The slowing of inflation was the first "positive" reading on price pressures since the Fed began tightening policy, Chicago Fed President Charles Evans said, even as he signaled he believes the Fed has plenty more work to do. read more

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 remains in a bear market and must climb more than 12% past its all-time high in January to begin a new bull market.

The CBOE Volatility index (.VIX), 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 (AAPL.O), Alphabet Inc (GOOGL.O), Amazon.com Inc (AMZN.O) and Microsoft Corp (MSFT.O) all rose more than 2% each.

Economy-sensitive banks (.SPXBK) advanced 2.7%, with Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N) climbing about 3% each.  "Banks have underperformed and are now getting bid," said Thomas Hayes, managing member of Great Hill Capital LLC, adding that investors are chasing the laggards that have not participated in the rally since June lows. 

 

Tesla Inc (TSLA.O) rose 3.9% after Elon Musk sold $6.9 billion worth of shares in the electric vehicle maker to finance a potential deal for Twitter Inc (TWTR.N) if he loses a legal battle with the social media platform. Twitter gained 3.7%. read more  Meta Platforms Inc (META.O) jumped 5.8% after the Facebook parent said on Tuesday it had raised $10 billion in its first-ever bond offering. read more

Volume on U.S. exchanges was 11.33 billion shares, compared with the 10.98 billion average for the full session over the past 20 trading days.

Advancing issues outnumbered declining ones on the NYSE by a 5.69-to-1 ratio; on Nasdaq, a 3.34-to-1 ratio favored advancers.  The S&P 500 posted five new 52-week highs and 29 new lows; the Nasdaq Composite recorded 64 new highs and 54 new lows.