US markets staged a furious comeback in a volatile trading session on Thursday despite the release of federal data showing inflation ran hotter than expected in September.
As of 2:30 p.m. ET, the Dow Jones Industrial Average was up more than 800 points higher, or 2.8%. The tech-heavy Nasdaq index jumped more than 200 points and the broad-based S&P 500 was up nearly 90 points.
The major reversal erased sweeping losses that occurred earlier in the day as investors panicked about inflation. Stocks initially sold off after the latest Consumer Price Index revealed core inflation ran at a 40-year high in September and headline inflation hit 8.2% for the month.
The dismal report affirmed the Federal Reserve’s plan to implement more sharp interest rate hikes this year. But major indices roared back as investors processed the data included in the inflation report and took a more optimistic view.
The surprise rally despite troubling economic data occurred just as many companies are preparing to report quarterly earnings – and left analysts scrambling to assess what changed in investors’ minds.
“There are no sellers left,” Thomas Hayes, managing member at Great Hill Capital in New York told Reuters. “No question that we’re at or near (the bottom).”
“We knew we were at an extreme inflection point and to see the market rally on bad news is actually really a sign of help because it just shows the selling has exhausted, the bad news is already known and now we’re going into earnings season with very low expectations,” Hayes added.
“Hopefully it’s because people have dug into the details of the inflation report and noticed a few signs that we could get inflation relief by the end of the year,” added Brian Jacobsen, senior investment strategist at Allspring Global Investments, in remarks to the Associated Press.
The September inflation report erased what little skepticism remained on Wall Street about a potential Fed “pivot.” Many investors had been calling for the central bank to ease up on its policy path due to mounting fears of a global recession.
Investors are pricing in a nearly 100% probability the Fed will hike its benchmark rate by three-quarter of a percentage point for the fourth straight meeting, according to CME Group data.
The Fed is slated to hold its next two-day conference on Nov. 1-2, with one more meeting to follow in December.
“The transition towards a slower pace of rate hikes, or even lower rates following the expected 75 basis point move on November 2, is still elusive until the Fed is convinced that victory against inflation is complete — or, that something breaks as cracks in the global financial fault line deepens,” said Quincy Krosby, Chief Global Strategist for LPL Financial.
Top performers in Thursday trading included Walgreens Boots Alliance, which spiked more than 6% on strong quarterly results and Delta Air Lines, which surged nearly 5% on rebounding travel demand.
Volatile cryptocurrencies such as bitcoin were trading flat by the afternoon after posting significant declines earlier in the day while investors were still eyeing the exits.
The US oil benchmark was up more than 2% and trading near $90 per barrel.