Wall Street rally lifts Nasdaq 20% from low as inflation fears to ebb

  • The Fed is now expected to achieve a 50 basis point hike in September
  • Consumer price growth slows in the United States in July
  • Musk sells Tesla shares worth $6.9 billion
  • Volatility index closes at four-month low

NEW YORK, Aug 10 (Reuters) – Wall Street surged on Wednesday, putting the Nasdaq more than 20% above its June low, after U.S. inflation slowed more than expected in July and raised hopes that the Federal Reserve will become less aggressive in raising interest rates. .

A sharp drop in the cost of gasoline helped the U.S. consumer price index hold steady last month after rising 1.3% in June, the Labor Department said. The CPI rose less than expected by 8.5% over the past 12 months after rising 9.1% in June. Read more

The rally came on the heels of the first notable sign of relief for Americans who have seen inflation climb steadily. The Nasdaq is now up 20.8% from the low, but still needs to break above its previous high in November to confirm a new bull market.

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Fed funds futures traders now price just a 43.5% chance the U.S. central bank will hike rates 75 basis points at its September meeting, down from 68% before the data. An increase of 50 basis points is considered a probability of 56.5%. Read more

“For the market, it’s kind of a Goldilocks scenario right now because the labor market is holding up and inflation is potentially starting to come down. That’s what a soft landing would look like,” Shawn Snyder said. , head of investment strategy at Citi. American wealth management in New York.

But a month of slowing inflation isn’t enough for the Fed to send a clear signal, Snyder said.

The rally on Wall Street was widespread, with all 11 sectors of the S&P 500 rising in a sea of ​​green. Growth stocks (.IGX) rose more than value (.IVX), while Dow transportation (.DJT), small caps (.RUT) and semiconductors (.SOX) also rose.

The Dow Jones Industrial Average (.DJI) rose 535.1 points, or 1.63%, to 33,309.51, while the S&P 500 (.SPX) gained 87.77 points, or 2.13% , to 4,210.24 and the Nasdaq Composite (.IXIC) added 360.88 points, or 2.89%, to 12,854.81.

It was the biggest one-day gain for the Nasdaq and S&P 500 in two weeks, and for the Dow Jones in three weeks. This is the highest close for the S&P 500 since early May.

“(Inflation at) 8.5% is still very high, but there is optimism that June may have been the peak,” said Randy Frederick, vice president of trading and derivatives at Charles Schwab.

Producer price data for July on Thursday as well as August inflation and jobs data to be released next month could again shift the Fed’s course, Frederick said.

The Fed has raised its key rate by 225 basis points since March despite fears that the sharp rise in borrowing costs could tip the US economy into a recession.

Traders work on the floor of the New York Stock Exchange (NYSE) in Manhattan, New York, U.S., August 8, 2022. REUTERS/Andrew Kelly

Slowing inflation was the first “positive” reading of price pressures since the Fed began to tighten policy, Chicago Fed Chairman Charles Evans said, although he signaled that thought the Fed still had a lot of work to do. Read more

After a rocky start to the year, the benchmark S&P 500 is up nearly 15% from mid-June lows, largely on expectations that the Fed will be less hawkish than expected in its efforts to provide a soft landing for the economy as it struggles to rein in inflation.

But the S&P 500 is 12% below its all-time high in January, having been in a bear market since then.

The CBOE Volatility Index (.VIX), Wall Street’s fear gauge, fell below the 20.00 level to close over four months behind.

High-growth and megacap tech stocks, whose valuations are vulnerable to rising bond yields, rose as Treasury yields fell sharply across the board. Apple Inc (AAPL.O), Alphabet Inc (GOOGL.O), Amazon.com Inc (AMZN.O) and Microsoft Corp (MSFT.O) all rose more than 2% each.

Economy-sensitive banks (.SPXBK) rose 2.7%, with Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N) climbing around 3% each.

“Banks have underperformed and are now getting offers,” said Thomas Hayes, managing member of Great Hill Capital LLC, adding that investors are chasing laggards who haven’t rallied since June lows.

Tesla Inc (TSLA.O) rose 3.9% after Elon Musk sold $6.9 billion of shares in the electric vehicle maker to fund a potential deal for Twitter Inc (TWTR.N)s he loses a legal battle with the social media platform. Twitter gained 3.7%. Read more

Meta Platforms Inc (META.O) jumped 5.8% after Facebook’s parent company announced on Tuesday that it had raised $10 billion in its first-ever bond issue. Read more

Volume on U.S. exchanges was 11.33 billion shares, compared to an average of 10.98 billion for the full session over the past 20 trading days.

Advancing issues outnumbered declining ones on the NYSE by a ratio of 5.69 to 1; on the Nasdaq, a ratio of 3.34 to 1 favored advancers.

The S&P 500 posted five new 52-week highs and 29 new lows; the Nasdaq Composite recorded 64 new highs and 54 new lows.

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Reporting by Herbert Lash; Additional reporting by Bansari Mayur Kamdar, Aniruddha Ghosh, Sruthi Shankar, Medha Singh and Karina D’Souza in Bengaluru; Editing by Anil D’Silva, Shounak Dasgupta and Lisa Shumaker

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