U.S. stocks vacillated between marginal gains and losses in choppy trade early on Friday — but continued to hold at or near eight-week highs — after logging their strongest session in more than two years on the back of a softer-than-expected October inflation report.
How are stocks trading
- The S&P 500 SPX, +0.49% was up 10 points, or 0.3%, at 3,966.
- The Dow Jones Industrial Average DJIA, -0.38% fell 44 points, or 0.1%, at 33,671.
- The Nasdaq Composite COMP, +55.95% fell 42 points, or 0.4%, at 11,156.
Equity indexes logged their biggest daily gains in more than two years on Thursday with the S&P 500 up 5.5%, the Dow up 1,201.43 points, or 3.7%, and the Nasdaq gaining 7.4%.
What’s driving markets
U.S. stocks were in consolidation mode early Friday as trading volume thinned during the Veterans Day holiday with trading in U.S. government bonds closed.
Market analysts including Tom Lee, director of research at Fundstrat, said stocks could continue to rally if October’s inflation report proves to be a turning point in the Federal Reserve’s battle to combat inflation after price pressures intensified to their strongest level in more than four decades over the summer.
“A softer than expected inflation reading in the U.S. has lit a fire under markets, with investors scrambling to deploy some of the mountain of cash which had been sitting on the sidelines,” said Richard Hunter, head of markets at Interactive Investor.
Data released on Thursday showed the headline consumer price index rose by a slower-than-forecast 7.7% year-over-year in October, while core inflation also came in at a slower-than-expected 6.3%.
The report triggered a spectacular bounce across asset classes, with the S&P 500 index jumping 5.5% on Thursday, its best daily gain since April 2020, and 2-year Treasury yields TMUBMUSD02Y, 4.323% plunging 33 basis points, the biggest daily decline since September 2008.
Investors now expect the Fed will slow the pace of interest-rate hikes to just 50 basis points at its December meeting after four consecutive “jumbo” hikes of 75 basis points. Beyond that, Fed funds futures expect the benchmark interest-rate will peak in the first quarter of next year, moving up the timeline for a Fed “pause.”
“The cool inflation print should mean the beginning of the end for inflation fears, and the Fed will feel much more comfortable ramping down. Indeed this is the kind of number that lifts all ships, as investors were not even close to being positioned for this type of inflation retreat,” said Stephen Innes, managing partner at SPI Asset Management.
Stocks have been roiled in 2022 as the Fed hiked its policy interest rate by 3.75 percentage points in the space of less than nine months in service of its inflation fight. The S&P 500 is down 17% so far this year.
Jonathan Krinsky, strategist at BTIG noted the stock market’s latest rally delivered some supportive technical indicators, including the S&P 500 (SPX) closing back above 3,900, the dollar index DXY, -1.31% falling below 109, and 10-year [Treasury] yield TMUBMUSD10Y, 3.819% dropping through 3.90%.
But he cautioned: “While these are clearly positives and could open the door for the SPX to test approximately 4,083 (the 9/13 gap-fill and 200 DMA), Thursday’s action alone is insufficient evidence to change our primary cautious view.”
Outside the U.S., news that China was easing its COVID-19 curbs contributed to a still-optimistic tone in markets, sending crude-oil futures and copper prices higher. West Texas Intermediate crude futures CL.1 were up 3.5% at $89.49 a barrel.
Bitcoin, meanwhile, tumbled on news that troubled cryptocurrency exchange FTX would be filing for bankruptcy protection. The pioneering cryptocurrency BTCUSD, -5.48% was trading below $16,800 per coin.
Companies in focus
- Walgreens WBA, +5.01% rose after Deutsche Bank upgraded the stock to buy from hold.
- Duolingo DUOL, -12.67% shares fell after the language class provider reported revenue for its most recent quarter that fell short of analyst forecasts.
- Intel INTC, +0.08% fell after the chip maker’s stock was rated underweight in resumed coverage at JPMorgan Chase.