Wall Street recorded its best day since April 2020 this Thursday, after the markets showed confidence after the October report on inflation in the United States, which after several months on the rise, began to cool down.
The S&P 500 was up 5.5% on Thursday and the Dow was up nearly 1,200 points, or 3.7%.
The Nasdaq Composite rose 7.3%. Those numbers marked the biggest point gain for the Dow and also the biggest percentage jumps for the S&P and Nasdaq since spring 2020.
Investors took the data as a sign that the worst of high inflation may finally be behind us, although analysts warned it was still premature to declare victory.
Treasury yields fell sharply as bond markets eased. Even bitcoin rose on hopes that a slowdown in inflation could mean the Federal Reserve won’t have to be as aggressive in raising interest rates.
Such increases have been the main reason for Wall Street’s troubles this year and threaten a recession.
Downward inflation, a relief
The upbeat figures came after a US government report showing inflation slowed in October for the fourth consecutive month since peaking at 9.1% in June. The 7.7% reading was better than the 8% economists had expected.
“To that extent, inflation is still high, but not scary,” Brian Jacobsen, senior investment strategist at Allspring Global Investments, told the AP agency.
Slower inflation could keep the Fed off the more aggressive path to raising interest rates.
By raising rates, the Fed is intentionally trying to slow the economy and labor market in hopes of undermining inflation, which hit a four-decade high in the summer.
The risk is that it can create a recession if it goes too far, and in the meantime, higher rates drag down the prices of stocks and other investments. The higher rates have particularly hit high-growth tech stocks, cryptocurrencies and other investments seen as the riskiest or most expensive.
Homebuilders and other companies in the housing industry were also hoping the Fed would take it easier on hikes that have already pushed mortgage rates to punishing levels for the industry.
Following Thursday’s inflation report, pundits were increasingly betting the Fed would raise rates by just 0.50 percentage point next month, rather than more.
While Thursday’s inflation report was encouraging, analysts warned that the Fed’s campaign against high inflation is probably still far from over, as that same data has also given false hope before and then accelerates again.