Stocks initially sold off Thursday after the latest consumer price index (CPI) showed inflation remained stubbornly high in September, before embarking on a massive rebound to end the day with impressive gains.
The Labor Department this morning said consumer prices ran hotter-than-expected last month – with many experts saying this all but guarantees the Federal Reserve issues another substantial rate hike at its November meeting. The Dow and S&P 500 were off roughly 2% at their session lows, while the Nasdaq was down 3%.
But by lunchtime, all three indexes were in positive territory – and they continued climbing from there. “Today’s market reversal was a head-scratcher,” says Edward Moya, senior market strategist at currency data provider OANDA. “Despite a hot inflation report, U.S. equities turned positive, as some investors are convinced core inflation will soon start trending lower.” Moya adds that the rally “probably got a boost from short covering as well, but given the path for rates is higher, this market reversal won’t last long.”
Today, though, the buying lasted into the close. The Dow Jones Industrial Average surged 2.8% to 30,038, while the S&P 500 Index (+2.6% at 3,669) and the Nasdaq Composite (+2.2% at 10,649) easily snapped their lengthy losing streaks.
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Investors should continue to expect high levels of inflation, at least in the near term. According to Kiplinger staff economist David Payne, inflation will likely end 2022 around 8% before easing back in 2023.
José Torres, senior economist at Interactive Brokers, says that one contributing factor to higher inflation will be rising energy prices, which jumped recently following a decision by the Organization of the Petroleum Exporting Countries and its allies (OPEC+) to cut oil output by 2 million barrels per day. “If lower gasoline prices haven’t produced satisfying inflation readings in August and September, how damaging might they be in October?” Torres asks. “A challenging winter ahead for Europe and the possibility of the relaxation of Chinese lockdowns may drive additional energy demands and propel prices further.”