Stock market rally takes a break after biggest one-day rise since 2020

US stocks halted their dramatic ascent on Friday morning after a deceleration in CPI inflation data inflamed the most intense rally on Wall Street since early 2020.

The S&P 500 (^GSPC) and Dow Jones Industrial Average (^ DJI) each posted a modest gain of 0.1% at the open, while the Nasdaq Composite (^IXIC) slipped below the break-even point. Treasury yields held steady after their biggest one-day drop on Thursday in more than a decade.

A reversal of China’s Zero-COVID policy to reduce the time spent in quarantine, travelers to the country boosted sentiment in early trade. Oil markets rose as traders believed the move could boost demand for commodities, with West Texas Intermediate (WTI) futures bouncing nearly 3% to over $88 a barrel.

Meanwhile, on the economic data front, the University of Michigan’s preliminary reading of its consumer sentiment survey for November fell to 54.7. 59.9 in October, the lowest since July.

The three great averages skyrocketed thursday, each recording their biggest single-day advances since a rebound from the throes of the COVID crash more than two years ago. Excessive movements have been catalyzed by lighter October consumer price data which fueled bets that the Federal Reserve could stop tightening financial conditions as early as early next year. The S&P 500, Dow and Nasdaq climbed 5.5%, 3.7% – or 1,200 points – and 7.4%, respectively.

“Overall, the report suggests that peak inflation may finally be behind us, although inflation may remain elevated for some time,” Sonia Meskin, head of US investment management at BNY, said Thursday. Mellon.

She noted that the figure supports the smaller 0.50% rate increase for December telegraphed at this month’s FOMC meeting, which investors are pricing in.

“However, it’s also important not to overemphasize a report for inflation and the political trajectory,” she added.

The consumer price index (CPI) in October rose 7.7% annually and rose 0.4% in the month. On a “basic” basiswhich excludes the volatile components of food and energy from the report, prices rose at a rate of 6.3% year-on-year and 0.3% on a monthly basis.

Federal Reserve Board Chairman Jerome Powell speaks during a press conference following a meeting of the Federal Open Market Committee on November 2, 2022. (Photo by MANDEL NGAN/AFP via Getty Images)

Despite the moderation, many strategists say the excitement is premature, Federal Reserve officials still on the verge of tightening after President Jerome Powell said last month that policymakers still had “some ways to goon restoring price stability – a message his central bank colleagues have since also echoed in a series of public speeches.

“The Fed’s extreme reliance on data, combined with the fact that economic data will only show the labor market in real time and slowing inflation only with a lag, increases the chances of an overtightening crash. “, said Gregory Daco, chief economist of EY Parthenon, in comments by e-mail. .

Meanwhile, DataTrek’s Nicholas Colas points to another reality: although inflation trends decline once they peak and begin to decline – as seen in 1970, 1974, 1980, 1990, 2001 and 2008 – this slowdown is usually accompanied by recessions, and there are no exceptions to the rule.

Turmoil persisted in cryptoworld as the The FTX debacle unfolds and the company announced on Friday morning that it was bankruptcy filing. Fallen crypto-hero billionaire Sam Bankman-Fried has also stepped down as CEO and would be under investigation by the United States Securities and Exchange Commission as its exchange seeks a cash bailout. Bitcoin was trading around $16,500 on Friday morning.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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