NEW YORK (AP) – A wave of relief hit Wall Street on Tuesday, with stocks soaring on one of the best days of the year on a surprisingly encouraging report on inflation.
The S&P 500 rose 1.9%, its highest since April and its highest in two months. The Dow Jones Industrial Average rose 489 points, or 1.4%, and the Nasdaq Composite Index rose 2.4%.
The much-anticipated report not only showed the overall Inflation slowed last monthBut so were key fundamental numbers that economists consider a better indicator of future trends. The slowdown has fueled speculation on Wall Street that inflation has cooled enough that the Federal Reserve could eventually raise interest rates in a way that would deflate the market.
Those expectations fueled investments of all kinds, with more than 90% of S&P 500 stocks rising in a broad-based rally.
Technology stocks and other high-growth stocks tend to get the biggest boost from easing interest rates, with Amazon’s 2.3% rise and Nvidia’s 2.1% rise being the two most powerful factors pushing the S&P 500 higher.
Stocks of small and medium-sized companies also rose significantly, with the small-cap Russell 2000 index rising 5.4%, its best day in a year. Small businesses often rely on borrowing cash to grow, which can make them more vulnerable to rising interest rates.
The inflation data helped boost Wall Street’s hopes that the Fed might actually perform the balancing act of slowing the economy enough to rein in inflation and hitting investment prices. But it wasn’t enough to cause a painful recession. However, that is not yet certain.
The Fed lowered its key interest rate from virtually zero early last year to its highest level since 2001 in hopes of lowering inflation. The move has already sent shockwaves through the financial system, with stocks still falling from their early 2022 highs and several high-profile U.S. bank failures earlier this year shaking investor confidence. There is.
Even if the Fed doesn’t raise rates any further, it plans to keep its key interest rate high for some time to ensure victory in the fight against inflation.
Still, Tuesday’s report was very encouraging for Wall Street. After the report was released, U.S. Treasury yields in the bond market immediately fell as traders rushed to bet the Fed would not raise rates again.
Investors also brought forward the expected schedule for the Fed’s first rate cut, which could act like steroids for financial markets and provide oxygen throughout the financial system. Many expect cuts to begin by the summer, but some economists say they likely won’t begin until the end of 2024.
“There is no reason to believe that the last mile of inflation will be the most difficult,” said Gregory Daco, chief economist at EY. “Slower consumer demand, lower housing rents, lower profit margins, moderating wage growth, and monetary restraint create an ideal disinflationary combination heading into 2024.”
The yield on the 10-year U.S. Treasury note fell to 4.44% from 4.64% late Monday, an important move for bond markets. just a few weeks ago The 10-year yield was over 5%. And it’s at its highest level since 2007.
Traders see zero chance of a rate hike at the next Fed meeting next month, down from a 14.5% chance a day earlier, according to data from CME Group.
The prospect of no further interest rate hikes resonated across all types of financial markets.
The value of the US dollar fell against many other currencies, further slowing its strong momentum since the summer, while the price of gold rose $16.30 to settle at $1,966.50 per ounce. Rising interest rates tend to hurt gold because when bond yields are high and gold payments remain zero, gold becomes less attractive as an investment.
On Wall Street, real estate stocks, which had fallen particularly sharply due to rising interest rates, soared, posting the biggest gains in the market.
Alexandria Real Estate shares, for example, rose 11.7%. The company has huge campuses for life science companies in hubs across the country.
Real estate investment trusts send most of their profits to investors as dividends. That is, they typically compete with bonds for the same type of investors. When interest rates rise and bond yields rise, investors often turn away from his REITs, utility companies and other high-dividend stocks.
Bank stocks were also strong on hopes that a halt to interest rate hikes would ease pressure on the financial system. Zions Bancorp rose 8.1% and Comerica rose 7.8%. Shares of both companies plummeted earlier this year after failures of banks one or two steps below Silicon Valley banks and industry giants.
Elsewhere on Wall Street, Home Depot rose 5.4%. Reports strong profits in latest quarter exceeded analysts’ expectations.
Target, Walmart and other major retailers are expected to release their latest financial results later this week. They’re nearing the end of an earnings season in which they outperformed analysts’ expectations. Companies in the S&P 500 are on track to achieve their first overall revenue increase in a year, according to FactSet.
Overall, the S&P 500 rose 84.15 points to 4,495.70. The Dow rose $489.83 to 34,827.70, and the Nasdaq rose $326.64 to 14,094.38.
In overseas stock markets, indexes generally rose across Europe and Asia.
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AP Business writers Yuri Kageyama and Matt Ott contributed.
Stan Cho, Associated Press