Stocks closed sharply higher on Tuesday, led by the Nasdaq, as softer-than-expected inflation data supported the view that the Federal Reserve may be done raising interest rates.
The Dow Jones Industrial Average jumped 489.83 points, or 1.4%, to 34,827.70, the Nasdaq climbed 2.4% and the S&P 500 rose 1.9%. The benchmark S&P 500 and the tech-heavy Nasdaq had their biggest percentage gains since April.
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.
“The clear catalyst was the softer-than-expected inflation report,” said Craig Fehr, head of investment strategy at Edward Jones.
“Getting some softer inflation readings provided markets some additional comfort that the Fed isn’t going to have to put in place a significant amount of additional restrictive policy to continue to bring consumer prices lower.”
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 1.2% and 6%.
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 7.4% 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 5.5% after the home improvement chain beat quarterly profit estimates.
Fisker slid 19% after the electric-vehicle startup slashed its 2023 production forecast.
