Traders work on the trading floor of the New York Stock Exchange (NYSE) in Manhattan, New York, U.S., August 8, 2022. REUTERS/Andrew Kelly
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- The Fed is now seen offering a 50bp hike in September
- US consumer price growth slows in July
- Musk sells $6.9 million worth of Tesla stock
- The volatility index closes at a four-month low
NEW YORK, Aug 10 (Reuters) – Wall Street rose on Wednesday, sending the Nasdaq more than 20 percent above its June low, after U.S. inflation slowed more than expected in July and raised hopes that the Federal Reserve will become less aggressive in raising interest rates. .
A sharp drop in the cost of gasoline helped the U.S. consumer price index hold steady last month after advancing 1.3 percent in June, the Labor Department said. The CPI rose a slower-than-expected 8.5% over the past 12 months after a 9.1% increase in June. Read more
The rebound came on the heels of the first notable sign of relief for Americans who have seen inflation steadily rise. The Nasdaq is now up 20.8% from its bottom, but still needs to surpass its previous high in November to confirm a new bull market.
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Fed funds futures traders have just a 43.5% chance the U.S. central bank will raise rates by 75 basis points when it meets in September, down from 68% before the data. A rise of 50 basis points is considered a 56.5% probability. Read more
“For the market, it’s kind of a gold rush scenario right now because the labor market is holding up and inflation is potentially starting to come down. So that would be a soft landing,” said Shawn Snyder, chief strategist at ‘Citi investment. US Wealth Management in New York.
But one month of slowing inflation isn’t enough for the Fed to send a clear signal, Snyder said.
The rally on Wall Street was broad-based, with all 11 sectors of the S&P 500 rising in a sea of green. Growth stocks (.IGX) rose more than value (.IVX), while Dow transports (.DJT), small caps (.RUT) and semiconductors (.SOX) also rose.
The Dow Jones Industrial Average (.DJI) rose 535.1 points, or 1.63%, to 33,309.51, while the S&P 500 (.SPX) gained 87.77 points, or 2.13% , to 4,210.24 and the Nasdaq Composite (.IX0IC.88) rose 87.77 points, or 2.13%. or 2.89%, up to 12,854.81.
It was the biggest one-day gain for both the Nasdaq and the S&P 500 in two weeks, and the Dow in three weeks. It was the S&P 500’s highest close since early May.
“(Inflation at) 8.5% is still very high, but there is optimism that maybe June was the peak,” said Randy Frederick, vice president of trading and derivatives at Charles Schwab.
Frederick said Thursday’s July producer price data, along with August inflation and employment data due out next month, could again alter the Fed’s course.
The Fed has raised its policy rate by 225 basis points since March, despite fears that sharply rising borrowing costs could tip the US economy into recession.
The slowdown in inflation was the first “positive” reading on price pressures since the Fed began tightening policy, Chicago Fed President Charles Evans said, although he indicated he believes the Fed has a lot more work to do. Read more
After a rough start to the year, the benchmark S&P 500 has risen nearly 15% since mid-June lows, largely on expectations that the Fed will be less bullish than expected in its efforts to deliver a landing soft for the economy as it struggles to slow down. inflation
But the S&P 500 is 12% off its all-time high in January, having been in a bear market since then.
The CBOE Volatility Index (.VIX), Wall Street’s gauge of fear, fell below the 20.00 level to close at a more than four-month low.
High-growth tech stocks and megacaps, whose valuations are vulnerable to rising bond yields, rose as Treasury yields fell sharply across the board. Apple Inc ( AAPL.O ), Alphabet Inc ( GOOGL.O ), Amazon.com Inc ( AMZN.O ) and Microsoft Corp ( MSFT.O ) each rose more than 2 percent.
Economy-sensitive banks ( .SPXBK ) advanced 2.7 percent, and Goldman Sachs Group Inc ( GS.N ) and Morgan Stanley ( MS.N ) rose about 3 percent each.
“Banks have underperformed and are now getting bids,” said Thomas Hayes, managing member at Great Hill Capital LLC, adding that investors are chasing laggards who haven’t participated in the rally since the June lows.
Tesla Inc ( TSLA.O ) rose 3.9 percent after Elon Musk sold $6.9 billion of shares in the electric vehicle maker to fund a potential deal for Twitter Inc ( TWTR.N ) if it loses a legal battle with the social networking platform. Twitter gained 3.7%. Read more
Meta Platforms Inc ( META.O ) rose 5.8 percent after the parent of Facebook said on Tuesday it had raised $10 billion in its first bond offering. Read more
Volume on US exchanges was 11.33 billion shares, compared to the full-session average of 10.98 billion over the past 20 trading days.
Advances outnumbered decliners on the NYSE by a ratio of 5.69 to 1; on the Nasdaq, a 3.34 to 1 ratio favored the advancers.
The S&P 500 posted five new 52-week highs and 29 new lows; the Nasdaq Composite recorded 64 new highs and 54 new lows.
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Report by Herbert Lash; Additional reporting by Bansari Mayur Kamdar, Aniruddha Ghosh, Sruthi Shankar, Medha Singh and Karina D’Souza in Bangalore; Editing by Anil D’Silva, Shounak Dasgupta and Lisa Shumaker
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