Wall Street’s main indexes rallied on Tuesday, led by rate-sensitive growth stocks, after a smaller-than-expected rise in U.S. consumer prices raised hopes that the Federal Reserve could soften its aggressive stance on interest rate hikes.
The benchmark S&P 500 .SPX touched a three-month high in morning trade after data showed U.S. consumer prices barely rose in November amid declines in the cost of gasoline and used cars, leading to the smallest annual increase in inflation in nearly a year.
Rising bets on a potential slowdown in the pace of rate hikes following the report led to a decline in Treasury yields and drove strong gains in megacap stocks, with Alphabet Inc GOOGL.O, Nvidia Corp NVDA.O, Amazon.com Inc AMZN.O and Apple Inc AAPL.O soaring between 4.8% and 7.3%.
Fed funds futures prices implied a strong chance that the U.S. central bank would follow its widely expected half-point interest rate hike on Wednesday with a smaller 25 bps rate hike in February, ultimately raising rates no higher than the 4.5-4.75% range.
“The Fed has raised rates pretty significantly over the course of this year and we’re starting to see the real results today,” said Art Hogan, chief market strategist at B. Riley Financial.
“I think what that tells us is that when the Fed meets tomorrow, they likely will have the ability to say we’re raising rates by less than what they have been, at 50 basis points, and the place at which we stop will likely be at 5%,” Hogan said.
The U.S. Labor Department’s report showed consumer prices increased by 7.1% on an annual basis in November, while the core rate, which excludes volatile food and energy prices, climbed 6.0%. Economists were expecting a 7.3% rise in headline CPI and a 6.1% rise in core rates.
The numbers follow November’s slightly higher-than-expected producer prices reading last week, which, however, pointed to a moderation in the trend.
Fears that the Fed’s aggressive policy tightening will tip the economy into a recession have pushed the benchmark S&P 500 down 14.2% this year.
With Tuesday’s gains, the tech-heavy Nasdaq .IXIC and the S&P 500 were on track to recoup much of their monthly losses.
The CBOE volatility index .VIX, also known as Wall Street’s fear gauge, hit a one-week low of 21.46 points, reflecting easing investor anxiety.
At 9:48 a.m. ET, the Dow Jones Industrial Average .DJI was up 587.00 points, or 1.73%, at 34,592.04, the S&P 500 .SPX was up 107.05 points, or 2.68%, at 4,097.61, and the Nasdaq Composite .IXIC was up 423.58 points, or 3.80%, at 11,567.32.
Oracle Corp ORCL.K jumped 4.6% on better-than-expected quarterly revenue, while Pinterest Inc PINS.N gained 10.9% after Piper Sandler upgraded the social media platform’s stock to “overweight” from “neutral”.
Advancing issues outnumbered decliners by a 12.94-to-1 ratio on the NYSE and 6.13-to-1 ratio on the Nasdaq.
The S&P index recorded 18 new 52-week highs and no new lows, while the Nasdaq recorded 57 new highs and 34 new lows.
