Dow Jones climbs 1,200 points on inflation report: Why the market rally may have room to run

Dow Jones futures were little changed overnight, as were S&P 500 and Nasdaq futures.




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The stock market rally surged on Thursday after a colder-than-expected CPI inflation report as the Dow Jones gained 1,198 points. Both headline and underlying price increases were lower than expected, strengthening the case for a slowdown in Fed rate hikes. Treasury yields and the dollar plunged.

If inflation continues to fall, the Fed could opt to end rate hikes sooner than Fed Chief Jerome Powell suggested last week.

Many of the big moves were in beat stocks. Apple (AAPL), Microsoft (MSFT), parent company of Google Alphabet (GOOGL), parent Facebook Metaplatforms (META), Amazon.co.uk (AMZN) and You’re here (TSLA) were all the big winners on Thursday, but MSFT stock was the only one to cross the 50-day line. Nvidia (NVDA), which currently has a larger market capitalization than META shares, rose after already recovering the 50-day line, but still needs a lot of work.

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

Still, investors should definitely consider adding more exposure and looking for stock placement.

However, there wasn’t much actionable action on Thursday. But GlobalFoundries (GFS), Enphase Energy (ENPH), Griffin (GFF), FirstSource Builders (BLDR) and General Motors (GM) all issued various buy signals.

GM stock was added to SwingTrader and was Thursday’s IBD stock of the day. ENPH stock is on the IBD Leaderboard watch list and the IBD 50 list.

Dow Jones Futures Today

Dow Jones futures were flat to fair value. S&P 500 and Nasdaq 100 futures fell slightly.

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

Beijing has reported the highest number of Covid cases in more than a year as rising infections across the country spur new lockdowns. China’s new leaders have called for more targeted and “decisive” restrictions to control the spread.

Remember that overnight action on futures contracts on Dow and elsewhere does not necessarily translate into actual trading in the next regular trading session.


Join the experts at IBD as they analyze actionable stocks 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 rose ahead of the open on the surprisingly tame CPI inflation report. Consumer prices in October rose 0.4%, or 0.3% excluding food and energy. The CPI inflation rate fell to 7.7%, the lowest since January. Core inflation returned to 6.3% vs. views to stay at 6.6%, a 40-year high.

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

The Dow Jones Industrial Average jumped 3.7% in stock trading on Thursday. The S&P 500 5.5%. The Nasdaq composite jumped 7.35%. Small cap Russell 2000 jumped 6.1%.

The 10-year Treasury yield fell 32 basis points to 3.83%, the lowest in a month. The dollar suffered its biggest decline in several years, continuing steep losses 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 good chance of a fifth consecutive 75 basis point increase. Notably, there is now a one-in-two chance of a Fed rate hike of just a quarter point in February.

Bitcoin traded above $17,000 on Thursday evening after dropping to a two-year low below $16,000 on Wednesday afternoon.

U.S. crude oil prices rose 0.6% to $86.47 a barrel. Natural gas jumped 6.4%.

Megacap shares

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

Microsoft stock jumped 8.2%, past its 50-day mark. Google stock jumped 7.6%, but remains well below its 50-day line.

Tesla stock rebounded 7.4%, but it was still an inside day after falling to a two-year low on Wednesday.

Nvidia shares jumped 14.3%, continuing a rebound that began on October 1. 13. Nvidia’s earnings are due in November. 16.

AND F

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) gained 3.1%. The iShares Expanded Tech-Software Sector ETF (IGV) climbed 9.1%, with MSFT stock a major component. ETF VanEck Vectors Semiconductor (SMH) climbed 10.2%. NVDA stock is a big asset.

The SPDR S&P Metals & Mining ETF (XME) jumped 5.5% and the Global X US Infrastructure Development ETF (PAVE) 5.65%. The US Global Jets ETF (JETS) climbed 4.9%. SPDR S&P Homebuilders ETF (XHB) raised the roof with a 10.3% gain. The Energy Select SPDR (XLE) ETF was up 2.2% and the Financial Select SPDR (XLF) ETF was up just over 5%. The SPDR health care sector fund (XLV) rose 2.5%.

Reflecting more speculative history stocks, ARK Innovation ETF (ARKK) charged 14.5% more and ARK Genomics ETF (ARKG) 11.1%. Tesla stock is a major holding in Ark Invest’s ETFs.


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Market rally analysis

The stock market rally had a massive gain on the CPI inflation report. Both the S&P 500 and the Russell 2000 topped their 50-day moving averages, with the former hitting recent highs and the latter just below its 200-day moving average. The Dow, which led the uptrend, moved from its 200-day line to its best levels since the August highs.

The Nasdaq, clearly lagging in the market rally so far, surged past its 50-day line. Amazon and many megacaps and battered cloud stocks led the way, while Nvidia and other chips continued their recent rise, but mostly below buy zones.

Thursday’s action was a later tracking day on all major indexes, with big NYSE and Nasdaq volume gains. This gives 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 critical Fed reports come out. This suggests a favorable context for the market recovery, at least during this period.

A positive follow-up would be for the Nasdaq to move decisively above the 50-day line, erasing its October highs just above 11,200. The S&P 500 breaking above 200 days would be a very strong signal.


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Main actions

There weren’t many leading stocks in position on Thursday. Some strong names look stretched, while Thursday’s big winners were mostly battered tech like Google that needs a lot of fixing work.

It is unclear which groups will lead the market rally. But there are many interesting groups and sectors.

Medical companies such as biotechs and health insurers, which led the market rally, missed Thursday’s big gains or retreated with riskier growth names in favor. Is it just a blip?

Defensive names had a tough exit, like Hershey (HSY) and other food stocks.

A wide range of housing-related stocks, including builders, suppliers and retailers, are balancing or moving above moving averages or long-term trend lines. Including DR Horton (DHI), Tempur Sealy (TPX) and BLDR stock.

Some other retailers, as well as several restaurants and some consumer games, are showing strength, Crocodile (CROX) to wing stop (WING) to GM stock. Certain financial, lithium, solar, agricultural and steel stocks are also doing well, in particular steel dynamics (STLD), Albemarle (ALB), CF Industries (CF), Charles Schwab (SCHW) and ENPH.

Some infrastructure companies are in or near buying areas, including Quantum Services (REP).

Energy stocks, which did little on Thursday, may continue to lead.

Networking actions appear robust, including International Digi (DGII). A few token names look interesting as the sector rebounds from a long slide. This includes GFS stock, which is slightly higher than early entries.

But for megacaps such as Apple, Microsoft and Tesla stocks, it may take some time before they lead. 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 right now, following the action of major indices and stocks.

This signals that it’s time to increase exposure, but not to rush. If this uptrend in the market has legs, there will be plenty of time to invest heavily.

The limited number of tradeable shares on Thursday was one of the reasons not to buy heavily. Investors could 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 have their watchlists up to date.

Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.

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

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