U.S. stocks stormed back from losses sparked by a hot inflation reading on speculation the yearlong selloff has potentially reached bottom
Author of the article:
Bloomberg News
Stephen Kirkland and Emily Graffeo
The S&P 500 surged to highs of the day in a broad rally — wiping out a loss that hit 2 per cent. Photo by Michael Nagle/Bloomberg /Photographer: Michael Nagle/Bloo U.S. stocks stormed back from losses sparked by a hot inflation reading on speculation the yearlong selloff had potentially reached a bottom.
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The S&P 500 surged to highs of the day in a broad rally — wiping out a loss that hit 2 per cent — on track to halt a six-day selloff that took it to a two-year low. Technical levels factored into the bounce. At one point, the index had given back 50 per cent of its post-pandemic rally, triggering programmed buying. A wave of put options bought to protect against such a rout moved into the money, and as profits were booked, that prompted dealers to buy stocks to remain market neutral.
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According to preliminary data, the S&P 500 gained 92.38 points, or 2.58 per cent, to end at 3,669.41 points, while the Nasdaq Composite gained 227.30 points, or 2.18 per cent, to 10,644.40. The Dow Jones Industrial Average rose 829.08 points, or 2.84 per cent, to 30,039.93.
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A gauge of consumer price growth rose to a 40-year high last month, sealing the case for the Fed to deliver a large rate hike in November. Stocks plunged 25 per cent this year before Thursday’s rebound, as the central bank tightened policy to curb inflation, leaving investors to weigh how much damage is left for share prices.
“There may be some short covering going on, but also, a lot was priced in,” said Michael Contopoulos, director of fixed income at Richard Bernstein Advisors. “There has likely been a fair amount of defensive positioning lately in equities and on the rates side, higher policy rates means higher probability of a hard landing.”
Risk assets have been under pressure all year as central banks around the world attempt to tame runaway inflation. The latest data added to evidence the harsh monetary medicine has yet to take hold and comes on the heels of last week’s payrolls figures that showed unemployment rate at a five-decade low in September.
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The Treasury curve flattened, with the yield on policy-sensitive two-year notes rising above 4.5 per cent before pulling back toward 4.4 per cent. Market bets on rates still lean toward back-to-back 75 basis-point hikes at the next two Fed meetings and expect the central bank to push rates past 4.85 per cent before the tightening cycle ends. The current rate is 3.25 per cent.
On the earnings front, Delta Air Lines Inc., Domino’s Pizza Inc. and Walgreens Boots Alliance Inc. gained on better-than-expected results. Big banks including JPMorgan Chase & Co. and Citigroup Inc. are due to report on Friday.
Additional reporting by Reuters