Wall Street’s main stock indexes climbed on Tuesday as cooler-than-expected inflation data boosted expectations that the Federal Reserve was done raising interest rates and could start cutting them next year.
The Dow Jones Industrial Average jumped 550 points, or 1.6%, to 34,888, and the Nasdaq climbed 2.3% and the S&P 500 rose 2%.
Both the S&P 500 and the tech-heavy Nasdaq were at a two-month high after data showed that US consumer prices were unchanged in October amid lower gasoline prices.
In the 12 months through October, the CPI climbed 3.2% after rising 3.7% in September, while economists polled by Reuters had forecast a 3.3% gain on a year-on-year basis.
Core prices, which exclude the volatile food and energy components, rose 4.0% compared to economists’ estimate of a 4.1% increase.
“We’re happy to see both headline and core CPI come in lower than expected. It’s telling us that the Fed is done, there’s nothing left for it to do here,” said Thomas Hayes, chairman at hedge fund Great Hill Capital at New York.
“This is what the Fed was looking for, slowing inflation, slowing labor market and the economy’s holding up at the same time.”
Following the data, traders erased bets the Fed will raise borrowing costs any further and piled into bets on rate cuts starting by May.
US Treasury yields dropped, with the two-year yield, which best reflects short-term interest rate expectations, sliding to two-week lows.
That in turn lifted megacap-growth stocks such as Nvidia, Alphabet, Amazon and Tesla up between 1.7% and 5% in early trading.
Wall Street’s main indexes have seen a strong rebound in November on expectations that US interest rates were near their peak, even as Fed Chair Jerome Powell last week left the door open to further tightening.
Focus is also on negotiations by US lawmakers over a funding bill, as lawmakers face an end-of-week deadline to fund the federal government.
House Speaker Mike Johnson said Tuesday he thinks the House will pass a short-term spending bill to avert a partial government shutdown beginning on Saturday.
Snap shares jumped 9.2% following news that Amazon will allow Snapchat users in the US to buy some products listed on the ecommerce company directly from the social media app.
Home Depot gained 5.3% after the home improvement chain beat quarterly profit estimates.
Fisker slid 17.3% after the electric-vehicle startup slashed its 2023 production forecast.