On Friday, U.S. stocks halted their dramatic ascent after a deceleration in CPI inflation data sparked the most intense rally on Wall Street since the start of 2020.
The S&P 500 (^GSPC) rose 0.1% in turbulent afternoon trading, while the Dow Jones Industrial Average (^DJI) slipped 240 points, or about 0.7%. The Nasdaq Composite (^IXIC) rose 0.8%. Treasury yields held steady after their biggest one-day drop on Thursday in more than a decade.
A reversal of China’s Zero-COVID policy aimed at reducing the time travelers spend in quarantine in the country boosted sentiment in early trade. Oil markets rose as traders believed the move could boost demand for commodities, with West Texas Intermediate (WTI) futures bouncing nearly 3% to top $88 a barrel.
Meanwhile, on the economic data front, the University of Michigan’s preliminary reading of its consumer sentiment survey for November fell to 54.7. 59.9 in October, the lowest since July.
All three major averages soared on Thursday, each recording its strongest one-day advances since a rebound from the throes of the COVID crash more than two years ago. The outsized moves were catalyzed by softer October consumer price data that fueled bets that the Federal Reserve could stop tightening financial conditions as early as early next year. The S&P 500, Dow and Nasdaq climbed 5.5%, 3.7% – or 1,200 points – and 7.4%, respectively.
“Overall, the report suggests that peak inflation may finally be behind us, although inflation may remain elevated for some time,” Sonia Meskin, head of US investment management at BNY, said Thursday. Mellon.
She noted that the figure supports the smaller 0.50% rate increase for December telegraphed at this month’s FOMC meeting, which investors are pricing in.
“However, it’s also important not to overemphasize a report for inflation and the political trajectory,” she added.
The consumer price index (CPI) in October rose 7.7% annually and rose 0.4% in the month. On a “basic” basis, which excludes the volatile food and energy components of the report, prices rose at a rate of 6.3% year-on-year and 0.3% on a monthly basis.
Despite the moderation, many strategists say the excitement is premature, with Federal Reserve officials still on the verge of further tightening after Chairman Jerome Powell said last month that policymakers still had “some way to go.” to do” to restore price stability – a message his central bank colleagues have since also echoed in a series of public speeches.
“The Fed’s extreme reliance on data, combined with the fact that economic data will only show the labor market in real time and slowing inflation only with a lag, increases the chances of an overtightening crash. “, said Gregory Daco, chief economist of EY Parthenon, in comments by e-mail. .
Meanwhile, DataTrek’s Nicholas Colas points to another reality: although inflation trends decline once they peak and begin to decline – as seen in 1970, 1974, 1980, 1990, 2001 and 2008 – this slowdown is usually accompanied by recessions, and there are no exceptions to the rule.
Unrest has lingered in the cryptoworld as the FTX debacle unfolds and the company announced Friday morning that it was filing for bankruptcy. Fallen crypto-hero billionaire Sam Bankman-Fried has also stepped down as CEO and is reportedly under investigation by the U.S. Securities and Exchange Commission as his exchange seeks a cash bailout. Bitcoin was trading around $16,500 on Friday morning.
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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