U.S. Stocks Post Strongest Gains In Two Years As Consumer Price Growth Slows

(RTTNews) - Stocks turned in their best performance in two years during trading on Thursday, reflecting a positive reaction to a highly anticipated report on consumer price inflation. With the strong upward move, the Dow reached its best closing level in almost three months, while the S&P 500 hit a two-month closing high.

The major averages saw further upside going into the close, ending the session at their best levels of the day. The Dow spiked 1,201.43 points or 3.7 percent to 33,715.37, the Nasdaq skyrocketed 760.97 points or 7.4 percent to 11,114.15 and the S&P 500 soared 207.80 points or 5.5 percent to 3,956.37.

The rally on Wall Street came following the release of a report from the Labor Department showing a smaller than expected monthly increase in consumer prices as well as a bigger than expected slowdown in the annual rate of price growth.

The Labor Department said its consumer price index rose by 0.4 percent in October, matching the increase seen in September. Economists had expected consumer prices to climb by 0.6 percent.

The annual rate of growth in consumer prices also slowed to 7.7 percent in October from 8.2 percent in September. The year-over-year increase was the smallest since January and came in below estimates for an 8.0 percent jump.

The report also showed core consumer prices, which exclude food and energy prices, edged up by 0.3 percent in October after advancing by 0.6 percent in September. Economists had expected core prices to rise by 0.5 percent.

The annual rate of growth in core prices also slowed to 6.3 percent in October from 6.6 percent in September, coming in below estimates for 6.5 percent growth.

The data suggests the Federal Reserve's efforts to contain inflation are having an effect, reinforcing recent optimism the central bank will slow the pace of interest rate hikes as early as next month.

"Evidence is accumulating that inflation has peaked and is now falling again," said Dr. Christoph Balz and Bernd Weidensteiner, senior economists at Commerzbank. "The Fed's next rate hike is therefore likely to be smaller."

Following the inflation data, CME Group's FedWatch Tool is currently indicating an 85.4 percent chance of a 50 basis point rate hike next month and a 14.6 percent chance of another 75 basis point rate hike.

A separate report released by the Labor Department showed a modest increase in first-time claims for U.S. unemployment benefits in the week ended November 5th.

Sector News

Interest rate-sensitive housing stocks moved sharply higher on the day, with the Philadelphia Housing Sector Index skyrocketing by 10.3 percent to its best closing level in well over two months.

Substantial strength was also visible among semiconductor stocks, as reflected by the 10.2 percent spike by the Philadelphia Semiconductor Index.

Retail stock also saw considerable strength on the day, resulting in a 7.5 percent surge by the Dow Jones U.S. Retail Index. The index bounced off its lowest closing level in almost five months.

Commercial real estate, computer hardware and gold stocks also showed standout moves to the upside amid a broad based rally on Wall Street.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Thursday. Japan's Nikkei 225 Index slumped by 1.0 percent, while China's Shanghai Composite Index fell by 0.4 percent.

Meanwhile, the major European markets showed strong moves to the upside on the day. While the German DAX Index spiked by 3.5 percent, the French CAC 40 Index surged by 2.0 percent and the U.K.'s FTSE Index jumped by 1.1 percent.

In the bond market, treasuries remained sharply higher after skyrocketing following the release of the U.S. inflation data. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, plunged 32.2 basis points to 3.829 percent.

Looking Ahead

Trading on Friday may be relatively subdued following today's slew of activity, although traders are still likely to keep an eye on a report on consumer sentiment.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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