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Dow Jones climbs 1,200 points in inflation report: Why market rally might have room to run

Dow Jones climbs 1,200 points in inflation report: Why market rally might have room to run
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Dow Jones futures rose overnight along with S&P 500 futures and Nasdaq futures.




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The stock market rally rose after a cooler than expected CPI inflation report, with the Dow Jones up 1,198 points. Headline and core gains were weaker than expected, bolstering the case for slower Fed rate hikes. Treasury yields and the dollar plummeted.

If inflation continues to ease, the Fed could end rate hikes earlier than Fed Chair Jerome Powell suggested last week.

Many of the big moves took place in depressed stocks. Apple (AAPL), Microsoft (MSFT), Google parent alphabet (GOOGLE), Facebook parent meta platforms (TARGET), Amazon.com (AMZN) and Tesla (TSLA) were all big gainers on Thursday, but MSFT stock was the only one to move above the 50-day moving average. NVIDIA (NVDA), which now has a higher market cap than META stock, rose sharply after retaking the 50-day moving average, but still requires a lot of work.

Many plummeting cloud software stocks posted double-digit gains on Thursday. digital turbine (APPLICATIONS) broke out after gains of 61%, but that’s not even a two-month high.

Still, investors should definitely consider adding more exposure and keep an eye out for the establishment of stocks.

However, there weren’t many actionable stocks on Thursday. leg GlobalFoundries (GFS), Enphase Energy (ENPH), griffon (GFF), Builders FirstSource (BLDR) and General Motors (GM) all flashed different buy signals.

Added GM shares swing trader and was on Thursday IBD Stock of the Day. ENPH stock is on the IBD Leaderboard Watch List and is on the IBD 50 sheets.

Dow Jones futures today

Dow Jones futures up 0.15% vs. fair value. S&P 500 futures were up 0.1% and Nasdaq 100 futures were up 0.15%.

The bond market will be closed on Friday for Veterans Day. The US stock exchanges open as usual.

Bitcoin temporarily surged above $18,000 on Thursday after plunging to a two-year low below $16,000 on Wednesday afternoon. But the cryptocurrency faded to around $17,000 as of Thursday night. Crypto lender BlockFi said it was pausing withdrawals after FTX was on the verge of collapse. Earlier this year, FTX reached an agreement to acquire BlockFi.

Beijing reported the most Covid cases in over a year as rising infections across the country prompted fresh lockdowns. China’s new leaders have been pushing for more targeted, “firm” restrictions to stem the spread.

Think about the night action in Dow futures and elsewhere not necessarily translated into actual trading in the next regular time stock market Meeting.


Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live


stock market rally

The stock market rally started strong and stayed that way throughout Thursday before closing on session highs.

Dow futures rose ahead of the open on the surprisingly dark CPI inflation report. In October consumer prices increased by 0.4% or 0.3% excluding food and energy. CPI inflation fell to 7.7%, the lowest since January. Core inflation declined to 6.3% vs. prospects to remain at a 40-year high of 6.6%.

The bulls cheered and sighed after finally getting a positive inflation reading.

The Dow Jones Industrial Average rose 3.7% on Thursday stock exchange trading. The S&P 500 Index 5.5%. The Nasdaq Composite rose 7.35%. Small-cap Russell 2000 is up 6.1%.

The 10-year government bond yield fell 32 basis points to 3.83%, its lowest level in a month. The dollar suffered its biggest drop in several years and continued its sharp decline over the past week.

Markets now see an 81% chance of a 50 basis point Fed rate hike in December. Ahead of the CPI inflation report, there was still a solid chance of a fifth consecutive 75 basis point rise. Remarkably, there is now a 50:50 chance of a Fed rate hike of just a quarter point in February.

US crude prices rose 0.6% to $86.47 a barrel. Natural gas collapsed 6.4%.

megacap stocks

Apple stock rose 8.9%, recovering from its worst close in nearly four months. META shares surged 10.25%, continuing their mini-run from bear market bottoms amid big jobs and other cost cuts. Amazon shares rose 12.2% from Wednesday’s 30-month low as the e-commerce giant announced a cost-cutting review.

Microsoft stock rose 8.2%, surpassing its 50-day mark. Google stock is up 7.6% but remains well below its 50-day moving average.

Tesla stock rallied 7.4% but was still an insider’s day after falling to a two-year low on Wednesday.

Nvidia stock is up 14.3%, continuing a recovery that began Oct. 1. 13. Nvidia earnings are due in November. 16

ETFs

among the The best ETFsthe innovator IBD 50 ETF (FFTY) increased by 3.1%. The iShares Expanded Tech Software Sector ETF (IGV) rose 9.1% with MSFT shares being a key component. The VanEck Vectors Semiconductor ETF (SMH) screamed 10.2% higher. NVDA stocks are a big holding.

SPDR S&P Metals & Mining ETF (XME) rose 5.5% and the Global X US Infrastructure Development ETF (PAVE) 5.65%. US Global Jets ETF (JETS) rose by 4.9%. SPDR S&P Homebuilders ETF (XHB) lifted the roof with a gain of 10.3%. The Energy Select SPDR ETF (XL) rose 2.2% and the Financial Select SPDR ETF (XLF) increased by just over 5%. The SPDR Fund for Selected Healthcare Sectors (XLV) rose by 2.5%.

The ARK Innovation ETF (ARKK) calculated 14.5% higher and ARK Genomics ETF (ARKG) 11.1%. Tesla stock is a key position in Ark Invest’s ETFs.


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Analysis of the market rally

The stock market rally had a massive win for the CPI inflation report. The S&P 500 and Russell 2000 jumped above their 50-day moving averages, with the former surpassing recent highs and the latter just below its 200-day moving average. The Dow Jones, which has been leading this uptrend, jumped off its 200-day moving average to its best level since the August highs.

The Nasdaq, the clear laggard in the market’s rally so far, jumped above its 50-day moving average. Amazon and many run-down megacaps and cloud stocks led the way, while Nvidia and other chips continued their recent rise, but mostly below buy areas.

Thursday’s action was a follow-up action following day on all major indices, with big volume gains on NYSE and Nasdaq. This provides more confidence in the stock market rally.

The CPI inflation report was just one data point, but it was what the Fed wanted and needed to see. Notably, it will be a few weeks before the next wave of reports critical of the Fed comes out. This suggests a favorable background for the market rally, at least during this period.

A positive outcome would be for the Nasdaq to move decisively above the 50-day moving average and clear its October highs just above 11,200. The S&P 500 moving above the 200-day mark would be a very strong signal.


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Leading Stocks

Not many leading stocks were in position on Thursday. Some strong names are looking prolonged, while Thursday’s big winners were mainly battered techs like Google in need of a lot of repair work.

It is not clear which groups will lead the market rally. But there are many interesting groups and branches.

Medical devices like biotechs and health insurers, which led the market’s rally, sat out Thursday’s big gains or fell back with riskier growth stocks. Is that just a slip?

Defensive names have had a tough showing, such as Hershey (HSY) and other food stocks.

A wide range of housing-related stocks, including home builders, suppliers and retailers, are clearing bases or moving above long-term moving averages or trendlines. This includes DR Horton (DHI), Tempur Sealy (TPX) and BLDR shares.

A few other retailers, along with several restaurants and some consumer games, are showing strength Crocs (CROX) the stop wing (WING) on GM shares. Some financials, lithium, solar, agriculture and steel stocks are also looking good, including steel dynamics (STLD), Albemarle (ALB), CF industries (CF), Karl Schwab (BLACK) and ENPH stocks.

Some infrastructure companies are located in or near buy zones, including Quanta Services (PWR).

Energy stocks, which weren’t doing much on Thursday, could continue to take the lead.

Networking stocks look resilient, including DigiInternational (DGII). Some chip names are looking interesting as the sector recovers after a long slide. That includes GFS stock, which is slightly above early entries.

But it could take some time for megacaps like Apple stock, Microsoft, and Tesla to take the lead. The same goes for cloud software, with the risk that some may not recover for years, if ever.


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What now

The stock market rally showed strength on Thursday and there is a plausible story that the uptrend has legs after the October inflation report. But for now it’s just a story.

Ultimately, investors should focus on what the market is doing now by following the performance of the major indices and leading stocks.

This signals that it’s time to up the exposure, but don’t rush it. If this market uptrend has legs, there is plenty of time to invest heavily.

The limited number of realizable shares on Thursday was a reason not to buy heavily. Investors can choose to buy a broad market or sector ETF such as SPY or SMH.

But there are plenty of stocks and sectors that look interesting. Investors should keep their watch lists up to date.

Read The big picture every day to stay in sync with market direction and leading stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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