Optimism that the fight against inflation could be getting closer to its end is fueling a stock-market rally across Wall Street.
The S&P 500 Index rose 4.5% at 12:25 p.m. in New York, putting the gauge on track for its best inflation-day session since the global financial crisis in 2008, and its best day overall since April 2020. Even after the rally, the gauge is trading at a level last seen in mid-September.
The consumer price index rose 7.7% in October from a year before in what was the smallest annual advance since the start of 2022, official data showed. That bolstered optimism that the Federal Reserve’s tightening program may be less aggressive going forward.
“Markets are applauding the cooler inflation print,” said Quincy Krosby, chief global strategist for LPL Financial. “Expectations for a downdraft in rates has begun with expectations for the Dec. 14 rate hike anchored at 50 basis points.”
Fed Chair Jerome Powell told reporters after last week’s meeting that rates could go higher than officials previously expected, but hinted that policy makers could use smaller moves to get there. Investors are leaning toward the Fed downshifting to a 50 basis-point increase when officials next gather in mid-December. Investors will get one more inflation report ahead of the meeting.
Signs that inflation cooled by more than forecast fueled a 6% gain in the rate-sensitive Nasdaq 100 Index, the biggest since April 2020. A gauge of implied volatility in the gauge dropped to 29.5, on track for its first close below the 30 level since September. A basket of money-losing technology firms tracked by Goldman Sachs Group Inc. soared 15% in its best day since Bloomberg started tracking the data.
Not everyone on Wall Street cheered the rally. To Victoria Fernandez, chief market strategist at Crossmark Global Investments, the stock market’s gains after a CPI miss will likely reverse in coming days, as the Fed isn’t likely to stop tightening based on one data release.