Stocks Soar After Big Fall Despite Higher Than Expected Inflation
1:31 pm Thursday, October 13th, 2022
Today’s trade is decidedly positive, but that wasn’t always the case. A hotter-than-expected reading for the September Consumer Price Index (CPI) precipitated losses of 2.4%, 3.2%, and 1.9% for the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average, respectively, shortly after today’s open. The stock market, however, has made an impressive recovery from those opening losses, staging an abrupt reversal after the S&P 500 fell below 3,500.
It appears that technical buyers saw a call to action when the S&P 500 dropped below 3,500, which effectively marked a 50% retracement of the pandemic rally. Today’s low for the S&P 500 was 3,491.58, which is also a new low for the year. The sharp bounce off today’s low, which has the S&P 500 back above 3,600, has likely been helped by short-covering activity.
The behavior of the Treasury and gilt markets has provided support for the rebound effort. The UK gilt market, and the currency market, got some relief from recent volatility following reports that UK Prime Minister Truss might dial back her fiscal stimulus plan.
The latter has underpinned the pound (GBP/USD); meanwhile, the euro has also gained ground against the dollar (EUR/USD). The US Dollar Index, which peaked at 113.92 shortly after the CPI release, is down 0.8% to 112.43.
Treasury note yields also spiked immediately following the CPI report before pulling back some. The 10-yr note yield, which reached 4.07% this morning, sits at 3.96% now. The 2-yr note yield, which jumped to 4.52% after the CPI report, sits at 4.43% now.
A reversal in price action for Apple (AAPL) and semiconductor stocks has been integral to the rebound effort, along with strength in the financial sector (+3.4%).
Apple was down 2.9% at its intraday low and the PHLX Semiconductor Index was down 4.9% at its intraday low. Semiconductors are showing strength now following a better-than-expected earnings report and outlook from TSMC (TSM). Chip equipment maker Applied Materials (AMAT) for its part is trading higher after a fiscal Q4 warning that was attributed to the new export restrictions on semiconductor technology to China.
All 11 S&P 500 sectors trade in positive territory with consumer discretionary (+0.3%) showing the slimmest gain. Energy (+4.0%) sits atop the leaderboard after WTI crude oil futures rose out of negative territory, up 2.0% to $89.02/bbl.
Total CPI rose 0.4% in September (consensus 0.2%) following a 0.1% increase in August. Core CPI, which excludes food and energy, rose 0.6% in September (consensus 0.4%) following a 0.6% increase in August. On a year-over-year basis, total CPI was up 8.2%, versus 8.3% in August, but core CPI was up 6.6% versus 6.3% in August.
