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

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

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  • The Fed now expects to offer a 50bp hike in September
  • US consumer price growth slows in July
  • Musk sells Tesla shares worth $6.9 billion
  • Volatility index closes at four-month low

NEW YORK, Aug 10 (Reuters) – Wall Street rose on Wednesday, putting the Nasdaq more than 20% above its June low, after U.S. inflation.

A sharp drop in the cost of gasoline helped the US Consumer Price Index hold steady last month after advancing 1.3% in June, the Labor Department said. The CPI rose 8.5% less than expected in the last 12 months after a 9.1% rise in June. read more

The rally came in the wake of the first noticeable sign of relief for Americans who have seen inflation rise steadily. The Nasdaq is now up 20.8% since bottoming but still needs to break above its previous peak in November to confirm a new bull market.

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Fed funds futures traders are now pricing in just a 43.5% chance that the US central bank will raise rates by 75 basis points when it meets in September, compared with 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 job market is holding and inflation could start to come down. This is what a soft landing would look like,” said Shawn Snyder, chief investment strategist at Citi. US Wealth Management in New York.

But a month of slowing inflation is not enough for the Fed to send a clear signal, Snyder said.

The rally on Wall Street was broad, with all 11 sectors of the S&P 500 rising in a sea of ​​green. growth stocks (.IGX) rose more than the value (.IVX)while Dow transports (.DJT)lowercase letters (.RUT) and semiconductors (.SOX) also pink.

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) it added 360.88 points, or 2.89%, to 12,854.81.

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

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

Producer price data for July on Thursday along with August inflation and jobs data due next month could alter the Fed’s course again, Frederick said.

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

The slowdown in inflation was the first “positive” reading on price pressures since the Fed began tightening policy, Chicago Fed President Charles Evans said, even as he noted he thinks the Fed has plenty more work to do. read more

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

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

The CBOE Volatility Index (.VIX)Wall Street’s fear gauge dipped below the 20.00 level to close at a more than four-month low.

High-growth, mega-cap tech stocks, whose valuations are vulnerable to rising bond yields, surged 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 increased more than 2% each.

Economically Sensitive Banks (.SPXBK) advanced 2.7%, with Goldman Sachs Group Inc. (SG.N) and morgan stanley (MS.N) going up about 3% each.

“Banks have been underperforming and now they are getting offers,” said Thomas Hayes, managing member of Great Hill Capital LLC, adding that investors are chasing laggards who have not participated in the rally since the June lows.

tesla inc (TSLA.O) rose 3.9% after Elon Musk sold $6.9 billion worth of shares in the electric vehicle maker to finance a potential deal with Twitter Inc. (TWTR.N) if you lose 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 said on Tuesday it had raised $10 billion in its first bond offering. read more

Volume on US stocks was 11.33 billion shares, compared to the 10.98 billion average for the entire session over the past 20 trading days.

Advancing issues outnumbered declining issues on the New York Stock Exchange by a ratio of 5.69 to 1; on 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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Information from Herbert Lash; Additional reporting from Bansari Mayur Kamdar, Aniruddha Ghosh, Sruthi Shankar, Medha Singh, and Karina D’Souza in Bengaluru; Edited by Anil D’Silva, Shounak Dasgupta, and Lisa Shumaker

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