A big rate hike by the Federal Reserve is a major reason for Wall Street’s struggles this year, and fears of a recession.
NEW YORK — Stocks are galloping toward their best day in years on Thursday as exhilaration sweeps Wall Street and global financial markets after a report shows US inflation slowed last month more than expected.
The S&P 500 was up 3.3% in early trading, but the data quickly saw prices jump in all markets from metals to European equities. Even Bitcoin has regained some of its sharp plunge from the previous day. The Crypto Industry’s Latest Confidence Crisis.
As of 9:43 am ET, the Dow Jones Industrial Average rose 713 points (2.2%) to 33,227 and the Nasdaq Composite was up 4.4%.
The most dramatic move may have been in the bond market, where investors weren’t expecting the Federal Reserve to be aggressive about raising rates to keep inflation in check, so the U.S. Government bond yields plummeted.
These big rate hikes by the Fed are the main reason Wall Street has struggled this year, and fears of a recession.
Yields on 10-year government bonds, which help set rates on mortgages and other loans, fell to 3.88% from 4.10% at the end of Wednesday. This is a big move for the bond market. The two-year yield, which more closely tracks expectations for Federal Reserve (Fed) action, fell to 4.33% from 4.58%.
All the moves stem from US government reports that inflation slowed last month to 7.7% from 8.2% in September. Inflation eased for the fourth straight month since he peaked at 9.1% in June, even better than the 8% economists had expected.
Perhaps more importantly, inflation also slowed more than expected after ignoring the impact of food and energy prices. This is a move the Fed is paying more attention to. From September he had inflation through October as well.
“Mom-over-month inflation is more informative,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.
A slowdown in inflation could discourage the Fed from aggressive rate hikes. Key lending rates have already been raised from near zero in March to a range of 3.75% to 4%.
By raising interest rates, the Fed is deliberately trying to slow the economy and the job market in hopes of taming inflation, which hit a 40-year high this summer. The risk is that going too far could trigger a recession, during which rising interest rates will drive down the prices of stocks and other investments.
Rising interest rates have hit particularly hard high-growth technology stocks, cryptocurrencies and other investments considered riskiest or most expensive.
Thursday’s inflation report was a promising sign, but analysts also cautioned against premature thinking that the war on inflation is over.
“The Fed has been adamant that it won’t put the brakes on rate hikes until inflation has slowed, and the market rally suggests investors may shed light on the end of the tunnel. We will have another reading before next month’s decision,” said Mike Lowengart, Head of Model Portfolio Construction, Morgan Stanley Global Investment Office. “Remember that even though we see a slowdown, prices are still rising and there is a long way to go before normalization.”
Another potentially market-shaking report is also due to hit Wall Street on Friday, with the latest figures on how much U.S. households expect inflation in the future. Fed Chairman Jerome Powell has said he is paying particular close attention to such expectations.
One of the reasons the Fed is so aggressive about raising rates is because expectations of higher inflation force people to change their behavior and avoid a cycle of weakness that leads to even higher inflation.
Stocks have been volatile this week with several factors pushing the market up and down.On the one hand, investors want election tuesday It could be Washington, where control is split between Democrats and Republicans. While this may prevent large-scale economic shifts that could make investors uneasy, the outlook is still uncertain as the vote is still being played.
Meanwhile, huge losses in the crypto world threatened to spill over to other markets and at least undermine investor confidence. Bitcoin fell below $16,500 just before the inflation report, down from about $20,000 a week ago and about $69,000 a year ago. Within 30 minutes he surged $1,000 and settled around $17,400.
Much of this week’s crypto buzz has centered around FTX, one of the larger exchanges that has seen customers scramble to withdraw money due to the industry’s latest confidence crisis. Due to how much money many crypto investors owe to trade, a sharp drop in crypto prices could trigger an even steeper drop, which could amplify market movements. there is.
Lenders are likely forcing investors to provide more collateral, called a margin call, a process that could take weeks to complete, according to JPMorgan strategists. According to strategists, one of the market challenges is the declining number of large, economically strong companies that can help the weak.
Contributed by AP Business Writers Joe McDonald and Matt Ott.
https://www.wfaa.com/article/news/nation-world/wall-street-surges-inflation/507-ba3ebacf-cfec-4004-b3c1-716479db2a48 Stocks rise as inflation slows in US