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US stocks are forming a notable rally in Thursday’s session, with all three major indexes soaring above 2%. The rally followed a morning session in which stocks hit yearly lows on hot retail inflation data.
In the late afternoon, the tech-heavy Nasdaq Composite (COMP.IND) to be 2.07% higher at 10,632.23 points, the Dow (DJI) to be + 2.79% at 30,026.55 points and the S&P (SP500) Achieved 2.46% up 3,666.61 points.
The first plunge caused by the CPI sent the Dow and S&P to near two-year lows. All data confirms a big rate hike at the next Federal Reserve meeting. The central bank raised interest rates by 75 basis points in three consecutive meetings, and many expect to do it again by the same margin in December.
The bargain hunters jumped in and by mid-day, the stocks were in positive territory. With the stock currently at such low levels, speculation could even form about bottoming out.
In the bond market, Treasury yields rebounded to the highs they had scaled back in the wake of the CPI report.
Consumer price data is the hot topic of the day, with CPI rising 0.4% greater than expected in September, compared with the previous month. This rate equates to an annual rate of 8.2%.
Thomas Hayes, president of investment management firm Great Hill Capital, told Seeking Alpha: “You had a sensational reaction, everyone was positioned for the worst-case scenario and you got it.
Core CPI rose at its highest annual rate in 40 years, up 0.6% on-month and 6.6% on-year.
“This is mainly supply-driven inflation, unlike in the 1970s which was demand-driven inflation. (The Fed) just has to let it run its course,” Hayes added.
Market odds now have a 95% chance of a 75 basis point increase, compared with the 80% chance seen prior to the inflation data. This would mark the central bank’s fourth consecutive increase in that amount. Fed funds futures are also currently pricing in 75 bps in December, up from 50. Ending rate expectations rose to 4.85% in March.
Moving on to the bond market, the 10-year Treasury yield (US10Y) rose 3 basis points at 3.93% and the 2-year yield (US2Y) rose 13 basis points to 4.43%, after hitting a new high the previous year.
Thursday also saw the release weekly jobless claims data, increased more than expected to 228k.
Among active stocks, car dealerships Carvana and CarMax decline after the CPI report reflecting used car prices continued to decline. Grocery chain Albertsons rises on reports it is in talks with rival Kroger combine.
Investors will now be looking at the quarterly reports of major US banks scheduled for tomorrow. Expectations have been fiercely heated by results from companies like JPMorgan (JPM), Citigroup (OLD) and Wells Fargo (WFC).
