Dow Jones Soars 1,200 Points On Inflation Report: Why Market Rally May Have Room to Run

Dow Jones futures rose slightly overnight, along with S&P 500 futures and Nasdaq futures.




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The stock market rally surged Thursday following a cooler-than-expected CPI inflation report, and the Dow Jones ran up 1,198 points. Headline and core price gains were lower than expected, bolstering the case for gradual Fed rate hikes. Treasury yields and dollars plunged.

If inflation continues to ease, the Fed may choose to end rate hikes sooner than Fed Chairman Jerome Powell suggested last week.

Most of the big moves are in beaten stocks. apples (AAPL), Microsoft (MSFT), Google his mother Sundanese script (Google), Facebook-mother Platform Meta (map), Amazon.com (AMZN) and Tesla (salad) were all big winners Thursday, but MSFT stock was only one move above the 50-day line. Nvidia (NVDA), which has a higher market cap than the current META stock, spiked after reclaiming the 50-day line, but still needs a lot of work.

Many crashing cloud software stocks had double-digit gains Thursday. Digital Turbine (APPLICATIONS) erupted for a gain of 61% below earnings, but it was not even a two-month high.

Still, investors should definitely consider adding more exposure and looking for stocks to set up.

There weren’t many stocks to do on Thursday, however. fire GlobalFoundries (GFS), Enphase Energy (NPH), Griffon (GFF), FirstSource builder (LDR) and General Motors (GM) all flashed various buy signals.

GM stock was added to SwingTrader and it’s Thursday’s IBD Stocks Today. Change in ENPH share price IBD Leaderboard watch list and is in The IBD 50 list.

Dow Jones Futures Today

Dow Jones futures rose 0.2% vs fair value. S&P 500 futures advanced 0.15% and Nasdaq 100 futures rose 0.2%.

The 10-year Treasury yield fell 2 basis points to 3.81%.

Beijing reported the most Covid cases in more than a year as a rise in infections across the country prompted fresh lockdowns. China’s new leaders are urging more targeted, “decisive” restrictions to control the spread.

Remember that the action is overnight Dow futures and elsewhere should not translate into actual trading in the next regular stock market session.


Join IBD’s experts as they analyze the stocks that could be in action in the stock market rally on IBD Live


Stock Market Rally

The stock market rally started strong and remained so throughout Thursday, closing at session highs.

Dow futures spiked ahead of the open on surprisingly tame CPI inflation reports. October consumer prices rose 0.4%, or 0.3% excluding food and energy. The CPI inflation rate fell to 7.7%, the lowest since January. Core inflation pulled back to 6.3% vs. views to remain at a 40-year-high of 6.6%.

Bulls cheered and sighed after finally getting a positive inflation reading.

The Dow Jones Industrial Average jumped 3.7% on Thursday stock market trading. The S&P 500 index was 5.5%. Nasdaq composite vaulted 7.35%. The small-cap Russell 2000 leapt 6.1%.

The 10-year Treasury yield fell 32 basis points to 3.83%, the lowest in a month. The dollar suffered its biggest drop in years, continuing the sharp losses of the past week.

The market now sees an 81% chance of a 50-basis Fed rate hike in December. Before the CPI inflation report, there is still a solid chance of a fifth-straight 75-basis-point increase. In particular, there is now a 50-50 chance of only a quarter of the Fed’s interest rate in February.

Bitcoin rebounded to around $17,500 Thursday night after crashing to a two-year low below $16,000 Wednesday afternoon.

US crude oil prices rose 0.6% to $86.47 per barrel. Natural gas rose 6.4%.

Megacap stock

Apple shares spiked 8.9%, rebounding from its worst close in nearly four months. META shares jumped 10.25%, continuing a mini-run from bear market lows amid big job and other cost cuts. Amazon shares jumped 12.2% from a 30-month high on Wednesday as the e-commerce giant announced a cost-cutting review.

Microsoft shares jumped 8.2%, hitting a 50-day high. Google stock popped 7.6%, but still well below its 50-day line.

Shares of Tesla bounced 7.4%, but it remained the day inside after falling to a two-year low on Wednesday.

Nvidia shares surged 14.3%, continuing a rebound that began on October 13. Nvidia’s earnings due on November 16.

ETFs

including The best ETFsInnovator IBD 50 ETF (FFTY) won 3.1%. iShares Expanded Tech-Software Sector ETFVAT) rose 9.1%, with MSFT shares being the main component. VanEck Vectors Semiconductor ETFSMH) screamed 10.2% higher. NVDA stock is a big holding.

SPDR S&P Metals & Mining ETFXME) rose 5.5% and the Global X US Infrastructure Development ETF (Save) 5.65%. US Global Jets ETFJETS) increased by 4.9%. SPDR S&P Homebuilders ETFXHB) raised the roof with a gain of 10.3%. The Energy Select SPDR ETFAxle) rose 2.2% and the Financial Select SPDR ETF (45) advanced by just over 5%. The Health Care Select Sector SPDR Fund (XIV) up 2.5%.

Showcasing a more speculative story stock, the ARK Innovation ETF (RKK) charge 14.5% higher than the ARK Genomics ETF (ARKG) 11.1%. Tesla stock is a major holding in the Ark Invest ETFs.


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Market Rally Analysis

The stock market rally had a massive gain in the CPI inflation report. The S&P 500 and Russell 2000 rose above their 50-day moving averages, with the former clearing recent highs and the latter just shy of its 200-day moving average. The Dow Jones, which has led this uptrend, jumped from its 200-day line to its best level since the peak of August.

The Nasdaq, the clear laggard in the market rally so far, jumped to move past its 50-day line. Amazon and many beaten-down megacaps and cloud stocks lead the way, while Nvidia and other chips continue their recent surge, but mostly below the buy area.

Thursday’s map was next day to follow in all major indexes, with large NYSE and Nasdaq volume gains. That provides more confidence in the stock market rally.

The CPI inflation report is just one data point, but it’s what the Fed wants and needs. In particular, it will be several weeks before the next wave of Fed-critical reports come out. That suggests a favorable backdrop for a market rally, at least for as long as it lasts.

A positive follow-up is that the Nasdaq moved decisively above the 50-day line, clearing its October peak above 11,200. The S&P 500 pushing above the 200 day would be a very strong signal.


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Leading Stocks

There weren’t many major stocks in position on Thursday. Some strong names appear to be extended, while Thursday’s big winners are mostly battered tech like Google that needs a lot of improvement.

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

Medical stocks such as biotech and health insurance, which have been leading the market’s rally, pared big gains Thursday or fell back in the name of riskier growth. Is it just a blip?

Name defense had a rough outing, such as Hershey (HSY) and stocks of other food products.

A variety of stocks related to housing, including builders, suppliers and retailers, clearing the base or moving above long-term moving averages or trendlines. It is included DR Horton (DHI), Combat-Sealy (TPX) and BLDR shares.

Some other retailers, along with some restaurants and some consumer plays, show strength, from Crocs (CROSS) To Wing stop (WING) to GM stock. Some financial stocks, lithium, solar, agriculture and steel also looked good, including Steel dynamics (TLD), Albemarle (ALB), CF Industries (CF), Charles Schwab (black) and ENPH shares.

Several infrastructure firms are located in or near the purchase zone, including Quanta Services (PWR).

Energy stocks, which did not do much on Thursday, may continue to lead.

Stock network looking robust, including Digi International (DGII). Some chip names look interesting as the sector rebounds after a long slide. That includes GFS stock, which is well above the initial entry.

But for megacaps like shares of Apple, Microsoft and Tesla, it could be a while before they do. The same goes for cloud software, with the risk that some may not recover for years, if ever.


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What To Do 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 action of the main indices and leading stocks.

It shows that it is time to increase the exposure, but there is no rush.

The limited number of actionable shares Thursday was one of the reasons for not buying heavily. Investors can choose to buy broad market or sector ETFs, such as SPY or SMH.

But there are plenty of stocks and sectors that look interesting. Investors should have their watchlist 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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