Closing Stock Market Summary
The major indices all closed with sizable gains, ending near their highs of the day on heavier than average volume. The S&P 500, which flirted with the 4,100 level on October 27, was trading above 4,500 at its high today before settling the session just below that level. The Russell 2000 surged 5.4%, which leaves the index positive for the year (+2.1%).
Equities reacted to a sharp drop in rates on the heels of the better-than-expected October Consumer Price Index (CPI), which corroborated the market's thinking that the Fed is done raising rates.
Total CPI was unchanged month-over-month (consensus +0.1%) and up 3.2% year-over-year versus 3.7% in September. Core CPI, which excludes food and energy, was up 0.2% month-over-month ( consensus +0.3%) and up 4.0% year-over-year versus 4.1% in September.
The fed funds futures market priced out the probability of any additional rate hikes by the Fed, and now sees a 65.4% probability of the first rate cut in May 2024, according to the CME FedWatch Tool.
The 2-yr note yield, at 5.02% just before 8:30 a.m. ET, settled 22 basis points lower than yesterday at 4.82%. The 10-yr note yield, at 4.62% just before the data, declined 19 basis points from yesterday to 4.44%. The U.S. Dollar Index also sank after the CPI data, down 1.5% to 104.05.
Buying activity was broad based with just about everything coming along for the rally. The equal weighted S&P 500 climbed 2.9% and the market-cap weighted S&P 500 rose 1.9%. All 11 S&P 500 sectors closed with a gain. The rate-sensitive real estate sector (+5.3%) led the pack followed by utilities (+3.9%) and consumer discretionary (+3.3%). The energy sector (+0.5%) saw the slimmest gain.
Home Depot (HD 303.63, +15.56, +5.4%) was an individual standout after reporting pleasing Q3 results.
- Nasdaq Composite: +34.7% YTD
- S&P 500: +17.1% YTD
- Dow Jones Industrial Average: +5.1% YTD
- S&P Midcap 400: +4.1% YTD
- Russell 2000: +2.1% YTD
Reviewing today's economic data:
- October CPI 0.0% ( consensus 0.1%); Prior 0.4%; October Core CPI 0.2% ( consensus 0.3%); Prior 0.3%
- The key takeaway from the report is that inflation is moving in the right direction, and because it is, the market will continue to believe that the Fed won't be moving the target range for the fed funds rate any higher.
Wednesday's economic calendar features:
- 07:00 ET: MBA Mortgage Applications Index (Prior 2.5%)
- 08:30 ET: October Retail Sales ( consensus -0.3%; Prior 0.7%) and Retail Sales, Ex-Auto ( consensus -0.2%; Prior 0.6%)
- 08:30 ET: October PPI (consensus 0.1%; Prior 0.5%) and core PPI ( consensus 0.3%; Prior 0.3%)
- 08:30 ET: November Empire State Manufacturing (consensus -5.0; Prior -4.6)
- 10:00 ET: September Business Inventories (consensus 0.4%; Prior 0.4%)