S&P 500 closes higher after another softer-than-expected inflation report, Nasdaq jumps 1.4%

Stocks resumed their inflation-driven rally on Tuesday after another report signaled that price increases could slow.

The Dow Jones Industrial Average ended the day up 57 points, or 0.2%. The S&P 500 rose 0.8% and the tech-heavy Nasdaq Composite gained 1.4%.

Major averages rallied after the producer price index, a measure of wholesale inflation, showed an increase of 0.2% for the month of October, against the consensus estimate of a 0.4% increase in the Dow Jones. The report comes after last week’s consumer price index data showed signs of easing inflationary pressures last month, triggering a strong recovery.

“The PPI reading certainly adds more fuel to the fire for those who think we might finally be on a downward trend in inflation,” said Mike Loewengart, head of model portfolio construction at Global Investment. Morgan Stanley office. “The market has embraced last week’s drop in consumption and today’s initial reaction appears to be more or less the same.”

The peak inflation narrative is gaining momentum, but the bar for a Fed pivot is still high, said Ross Mayfield, investment strategy analyst at Baird.

“There will be trepidation at the central bank given its concerns about credibility and its desire to avoid the mistakes of the 1970s (i.e. a stop and start policy that extended the inflationary period),” he said. “But the crumbs are already being laid for a deceleration in the pace of tightening heading into 2023.”

The Dow Jones and S&P dipped briefly into the red in the afternoon after crude oil prices suddenly rose. Oil prices then declined from those highs, with West Texas Intermediate futures lately rising 1.2% to $86.90 a barrel.

Stocks finished higher for the third day of the past four, and all major averages are on course for monthly gains. The Dow is up 2.6% for the month of November. The S&P and Nasdaq gained 3.1% and 3.4% respectively.

Elsewhere, retail stocks also lifted investor sentiment. Walmart shares jumped after the company beat Wall Street earnings and revenue estimates and boosted its full-year guidance. Home Depot also posted strong results, but held its guidance in place for the full year. Its shares rose slightly.

“Retail revenues are off to a good start and could serve to reinforce the broader narrative of consumer resilience and labor market stress,” Mayfield said. “Earnings are critically important from here…the pace and extent of earnings deceleration (or re-acceleration) should determine where stocks go next.”

Taiwan Semiconductor, Louisiana-Pacific and Paramount also jumped after regulatory filings showed Warren Buffett’s Berkshire Hathaway bought new positions in the former two and increased its stake in the latter.

Earnings season continues this week with retail reports from Target, Lowe’s, Bath and Body Works, Macy’s, Kohl’s and Foot Locker on deck.

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