Wall St rallies, data suggests rate hikes may be over

Caroline Valetkevitch |

Wall Street investors have cheered signs the US central bank may be done hiking rates.
Wall Street investors have cheered signs the US central bank may be done hiking rates.

The S&P 500 and Nasdaq have posted their biggest daily percentage gains since April 27 with softer-than-expected inflation data supporting the view the Federal Reserve may be done raising interest rates.

The small-cap Russell 2000 index jumped 5.4 per cent on Tuesday, outperforming the broader market, while the rate-sensitive S&P 500 real estate sector gained 5.3 per cent and utilities rose 3.9 per cent.

All three registered their biggest daily percentage increases since November 10, 2022.

Data showed US consumer prices were unchanged in October as Americans paid less for petrol and the annual rise in underlying inflation was the smallest in two years.

In the 12 months through October, the CPI climbed 3.2 per cent – below economists’ estimates – after rising 3.7 per cent in September.

“The clear catalyst was the softer-than-expected inflation report,” Edward Jones investment strategy head Craig Fehr said.

“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.”

Since March 2022, the Fed has hiked its policy rate 525 basis points to combat high inflation.

The Dow Jones Industrial Average rose 489.83 points, or 1.43 per cent, to 34,827.7; the S&P 500 gained 84.15 points, or 1.91 per cent, at 4,495.7; and the Nasdaq Composite added 326.64 points, or 2.37 per cent, at 14,094.38.

Also, the KBW regional banking index rose 7.5 per cent in its biggest daily percentage rise since January 2021.

“It’s difficult with higher rates with the commercial real estate on their balance sheets,” said Quincy Krosby at LPL Financial in North Carolina.

Expectations on the Fed cutting rates next year also shifted following the day’s data.

US rate futures on Tuesday priced in a 65 per cent chance of a rate cut in May, compared with 34 per cent late on Monday, according to the CME’s FedWatch tool.

Investors also focused on negotiations in Congress over a funding bill as an end-of-week deadline looms to fund the federal government.

Among individual stocks, Snap Inc shares jumped 7.5 per cent following news Amazon.com 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 5.4 per cent after the US home improvement chain beat quarterly profit estimates.

Volume on US exchanges was 12.62 billion shares, compared with the 11.09 billion average for the full session over the last 20 trading days.

Advancing issues outnumbered decliners on the NYSE by a 9.80-to-1 ratio; on Nasdaq, a 3.59-to-1 ratio favored advancers.