Stocks Wipe Out CPI-Fueled Slide as Big Tech Jumps: Markets Wrap

(Bloomberg) -- A rally in the world’s largest technology companies spurred a stock-market rebound in a volatile session that had Wall Street traders digesting faster-than-anticipated inflation data.

The S&P 500 climbed 1.1% and the Nasdaq 100 rallied 2.2%. It was the first time since October 2022 that each gauge erased an intraday loss of at least 1.5%. Chipmakers led gains, with Nvidia Corp. up 8%. Treasury two-year yields edged up on bets the Federal Reserve will move gradually with rate cuts. Swap traders cemented bets on only a quarter-point Fed reduction next week.

“Stocks bounced back after the initial post-CPI drop as dip-buyers once again stepped in to save the markets,” said Fawad Razaqzada at City Index and Forex.com.

To Skyler Weinand at Regan Capital, we should expect “more smooth sailing” after an initial Fed cut and post-election as uncertainty fades and investors start to price-in 2025 earnings.

“Stock bulls should favor a slow and controlled vertical walk down the monetary policy stairs rather than a speedy and turbulent roll south to lower stories,” said Jose Torres at Interactive Brokers. “When performing historical analysis, the former case has been consistent with soft landings and earnings buoyancy, while the latter tends to occur during economic slowdowns and profit declines.” 

The S&P 500 closed around 5,554. A Bloomberg gauge of the “Magnificent Seven” megacaps jumped 2.6%. The Dow Jones Industrial Average rose 0.3%. The Russell 2000 Index of smaller companies added 0.3%.

Treasury 10-year yields advanced one basis point to 3.66%. The dollar fell. Oil climbed as Hurricane Francine ripped through key oil-producing zones in the US Gulf of Mexico, prompting traders to cover bearish bets.

The so-called core consumer price index — which excludes food and energy costs — increased 0.3% from July, the most in four months, and 3.2% from a year ago, Bureau of Labor Statistics figures showed Wednesday. The three-month annualized rate advanced 2.1%, picking up from 1.6% in July, according to Bloomberg calculations.

“This isn’t the CPI report the market wanted to see,” said Seema Shah at Principal Asset Management. “The number is certainly not an obstacle to policy action next week, but the hawks on the committee will likely seize on today’s CPI report as evidence that the last mile of inflation needs to be handled with care and caution.”

To David Russell at TradeStation, while the latest inflation numbers aren’t “runaway dovish,” they confirm the cooling process remains in effect. Attention could now shift from the Fed as a catalyst toward earnings and the election cycle, he noted.

“The firmer-than-expected core inflation print will make it harder for Jerome Powell to deliver a 50 basis-point cut in September,” said Krishna Guha at Evercore. “We continue to think a starter 50 basis-point cut is the right play and might even now win out. But the odds have moved against this, and risks to markets and the soft landing are higher as a result.”

Guha noted that if the Fed doesn’t cut rates by 50 basis points next week, it will possibly do that in November

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This story was produced with the assistance of Bloomberg Automation.

--With assistance from Lu Wang.

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