[New York Stock Market] Why Did Stocks Soar Over 2% Despite the CPI Shock?... Dow Recovers to 30,000 Level

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Major indices on the U.S. New York Stock Exchange closed with gains in the 2% range on the 13th (local time), despite the Consumer Price Index (CPI) continuing a steep rise that exceeded market expectations. The rebound is seen as a response to the recent continuous decline and the fact that 'persistent high inflation' is not new news. With increased volatility, warnings of a 'rally within a bear market' are pouring in.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 30,038.72, up 827.87 points (2.83%) from the previous session. The large-cap S&P 500 index rose 92.88 points (2.60%) to 3,669.91, and the tech-heavy Nasdaq index gained 232.05 points (2.23%) to close at 10,649.15. The small-cap Russell 2000 index also ended higher at 1,728.41, up 40.65 points (2.41%). The New York stock market, which started in a downtrend, rebounded after digesting a stronger-than-expected CPI report. Economic media CNBC reported, "The trading range of the S&P 500 index was the widest since March 2020."

By sector, rallies in energy and banking stocks led the rebound. International oil prices rose for the first time in three trading days, with Chevron soaring 4.85% from the previous close. ExxonMobil rose 3.49%, and Occidental Petroleum jumped 4.44%. Leading bank stocks also closed higher: JPMorgan up 5.56%, Bank of America (BoA) up 6.13%, and Citi up 5.17%.

Semiconductor stocks, which had been declining following the Biden administration's announcement of export controls on China, also showed a rally on this day. Intel rose 4.30%, Nvidia 4.0%, and Qualcomm 3.88%. Major tech stocks such as Apple (+3.36%), Tesla (+2.06%), and Microsoft (+3.76%) also showed strength. Additionally, Walgreens Boots Alliance closed up 5.35% on strong earnings. Domino's Pizza also surged over 10% after reporting sales that exceeded market expectations. Netflix rose 5.27% after announcing it will launch a $6.99 monthly ad-supported plan next month.

Investors closely monitored the CPI data, corporate earnings, and the IMF press conference released that day to gauge the Federal Reserve's (Fed) tightening pace and recession concerns.

According to the U.S. Department of Labor, the September CPI rose 8.2% year-over-year and 0.4% month-over-month. These figures slightly exceeded Dow Jones experts' forecasts of 8.1% year-over-year and 0.3% month-over-month. Particularly, the core CPI excluding energy and food surged at the largest rate since August 1982, raising concerns about prolonged high inflation. The September core CPI rose 6.6% compared to a year ago, surpassing both the previous month's increase (6.3%) and market expectations (6.5%).

The stronger-than-expected inflation pressure has strengthened the Fed's high-intensity tightening stance. Not only is a fourth consecutive giant step (0.75 percentage point rate hike) highly likely in November, but large rate hikes are also expected to continue through December and early next year. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) futures market currently prices in over a 99% chance of a 0.75 percentage point rate hike in November, up from 75% a week ago and 84% the day before. The probability of a 1.0 percentage point hike next month is also at 0.7%.

Michelle Meyer, Chief U.S. Economist at Mastercard Economics Institute, stated, "The Fed has made it clear that it is committed to price stability and is doing its best to reduce inflationary pressures," adding, "The more inflation indicators exceed market expectations, the more they must demonstrate that commitment. This means higher interest rates and a cooling economy."

The September FOMC minutes released the previous day showed that some participants raised the so-called 'speed control theory,' suggesting a slight adjustment in the pace of additional tightening due to concerns about the cumulative policy impact on the economy. However, the strong CPI announcement that exceeded market expectations on this day is seen as having weakened the minority opinion.

Labor market indicators, which the Fed is closely watching, remain robust. The Department of Labor reported that initial jobless claims for the week of October 2?8 rose by 9,000 to 228,000, exceeding market expectations of 225,000. CNBC noted that this still indicates a relatively low number of layoffs.

The International Monetary Fund (IMF), which recently lowered its economic growth forecast, also supported the tightening moves by the Fed and other central banks despite repeated warnings of economic slowdown. IMF Managing Director Kristalina Georgieva said at the IMF-World Bank annual meeting press conference in Washington DC, "We cannot let inflation become a runaway train," emphasizing, "Central banks must take action." She added, "While rate hikes come at a cost to growth, failing to tighten enough to control inflation will result in higher and longer-lasting rates, causing greater damage to growth." U.S. President Joe Biden stated in a release immediately after the CPI announcement, "Fighting global inflation that affects households is my top priority."

Typically, strong inflation reports exert downward pressure on the stock market. However, the New York stock market, which started in a downtrend, turned positive during the morning session. Experts believe this may be because the S&P 500 had already fallen excessively, with six consecutive days of decline. Frank Cappelli of Capcis said, "Overall, investors may have judged that their positioning in the market was too extreme." Art Hogan, Chief Market Strategist at B. Riley Financial, analyzed the CPI report by saying, "(High inflation is) disappointing but not new information," and that investors did not discover new facts, leading to the rebound.

Some analysts suggest that the stronger-than-expected inflation report gave investors confidence that inflation has peaked. Mona Mahajan, Senior Investment Strategist at Edward Jones, mentioned that housing inflation, which has a lag in reflection, may not be as bad as the current CPI report, adding, "There is some sentiment that inflation has peaked."

In the New York bond market on this day, the U.S. 10-year Treasury yield briefly surpassed 4% during the session but then eased to around 3.96%. The 2-year yield, sensitive to monetary policy, hovered around 4.47%.

The dollar, which showed gains early in the session, later turned downward. The Dollar Index, which measures the dollar's value against six major currencies, fell more than 0.7% to around 112.4, down from a near 114 peak reached on September 28.

Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, said, "As investors digest inflation data and the earnings season begins, stock market volatility will continue," adding, "There are still many factors that can cause volatility." Greg Swenson, founding member of investment bank Brigg Macadam, warned, "Getting excited about the current rally could be a mistake," and advised preparing for greater volatility, saying, "This is more like a bear market rally, and worse news is coming."

Oil prices rose for the first time in three trading days as the dollar weakened. On the New York Mercantile Exchange, November West Texas Intermediate (WTI) crude oil closed at $89.11 per barrel, up $1.84 (2.11%) from the previous close.

This content was produced with the assistance of AI translation services.