Wall St: Stocks climb in sharp reversal; Dow, S&P jump 2%

Treasury yields pulled back from higher as investors assess impact of latest hot inflation Reading up on the policy path of the US Federal Reserve.

The S&P 500 jumped 2%, with gains in all 11 key sectors reversing losses of more than 2% at the open in a return from session lows.

The tech-heavy Nasdaq 100 and the Dow Jones Industrial Average rose more than 2%. The yield on the policy-sensitive two-year notes soared to over 4.5% before dropping back.

In addition to stocks, prices also initially declined for bonds and cryptocurrencies shortly after the US Department of Labor released its report, which showed inflation spreading more widely in the economy.

A component closely followed by policymakers and investors reached its hottest level in 40 years.

bitcoin is becoming less volatile

At first, with bitcoin becoming less volatile than stocks, this may sound like a positive development. But crypto traders are warning that in a low-volume environment, this may not be a very good thing.

Bitcoin is down nearly 2.6% to $18,666 as of 6:55 am in New York on Thursday, its lowest level in nearly two weeks.

Crypto has suffered this year as the Federal Reserve and other central banks aggressively raise rates to calm inflation.

This has pushed a lot of digital-asset investors — especially those who have over the past few years — out of the space and away from daily trading, a major shift from the hype-fueled frenzy of previous years.

Retail investors, in particular, have been missing out on the action. Meanwhile, institutions have recently become a key player, potentially helping to explain why volatility has plummeted.

Fed to deliver a big rate hike in November

A gauge of consumer price growth hit a 40-year high last month, sealing the case for the Fed to make a big rate hike in November. The stock has fallen more than 25% this year as the central bank begins tightening policy to curb inflation, giving investors an idea of ​​just how much damage is left for share prices.

The latest data, added to the evidence of hard monetary medicine, has yet to hold up and comes on the heels of last week’s payroll data showing the unemployment rate in September at a five-decade low.

Risk assets have been under pressure throughout the year as central banks around the world attempt to contain runaway inflation. The latest data, added to the evidence of hard monetary medicine, has yet to hold up and comes on the heels of last week’s payroll data showing the unemployment rate in September at a five-decade low.

“This CPI report is not the markets or the Fed was expecting,” said James Athe, investment director at Aberdon. “Inflation pressures are enormous. The reality is that for the foreseeable future, the Fed is clearly locked in a ruckus. This will support bond yields and the US dollar, but it is even worse news for equities.”

Market bets on rates are now tilted towards back-to-back 75 basis-point increases over the next two Fed meetings. They now expect the central bank to raise rates beyond 4.85% before the tightening cycle ends. The current rate is 3.25%.

more market commentary

• “After today’s inflation report, there can be no one in the market who believes the Fed can raise rates by less than 75 bps at its November meeting,” wrote Seema Shah, strategist at Principal Global Investors. “Indeed, if this kind of upside surprise is repeated next month, we could face a fifth consecutive 0.75% hike in December, before the year ends with policy rates hiked through the Fed’s peak rate forecast. Is.
• Looking at the latest CPI report, “any continued pick up in energy prices could take us to a new high in headline inflation”, said Steve Chiavron, senior portfolio manager at Federated Hermes. This “could very well shake the markets because it pushes anyone back” expectations of extreme inflation, extreme Fed enthusiasm and could force the market to consider a terminal fed funds rate above 5%. All of this would increase the risk of more bond pain, more equity pain, and greater risk of a financial crash. ,

Meanwhile, UK markets remained in turmoil nearly two weeks after the government unveiled plans to drastically cut taxes.

Speculation leaders may reconsider the controversial program that sent the pound higher and yields on the benchmark gilt fell more than 25 basis points.