S&P, Nasdaq, Dow soar after cool CPI hits

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Major market averages rallied sharply on Tuesday after retail inflation rose less than expected last month.

The S&P 5000 (SP500) gained 1.7%the Dow (DJI) picked up 0.8%and the tech heavy Nasdaq Composite (COMP.IND) pushed higher by 2.5%.

Rates tumbled. The 10-year Treasury yield (US10Y) was down 15 basis points to 3.45% and the 2-year yield (US2Y) was down 20 basis points to 4.19%.

The November CPI rose 0.1% on the month, compared with a forecast for a 0.3% gain. The core rate rose 0.2% vs. expectations for 0.3%. The annual headline rate fell to 7.1%. Shelter/OER was still hot, up 0.7%, which may have given the market some pause after the initial spike.

The market is still pricing in a Fed hike of 50 basis points tomorrow.

Pantheon Macroeconomics highlighted in an investor note: “This report does not change tomorrow’s Fed decision; they will hike by 50bp. But Chair Powell’s tone likely will be less aggressively hawkish than in November, and his more dovish colleagues likely will be emboldened by this report . We now think 25bp is more likely on Feb 1, and we think that will be the final hike.”

Moreover, TS Lombard’s Dario Perkins tweeted. “The Fed needs more than a couple of these soft CPI numbers to be sure the trend has changed.”

We “don’t get many days as important as the next two, and the US CPI today and the FOMC tomorrow are likely to be the difference between a big Santa Claus rally and a visit from Scrooge ahead of Christmas,” Deutsche Bank’s Jim Reid wrote. “Bear in mind the S&P 500’s best and worst day of the year so far have both come on a CPI day, and it was only last month that the downside surprise triggered a seismic market reaction, leading to the biggest one-day gain for the S&P 500 (+5.54%) since April 2020, and the largest daily decline in the 2yr Treasury yield (-24.7bps) since 2008.”

Among active stocks, Mirati Therapeutics (MRTX) rallied sharply after the approval of a lung cancer treatment.

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