Wall stepped on the gas after the ‘brake’ on inflation – Nasdaq out of bear market

With strong investments in equity values, investors welcomed the significant slowdown in inflation in the US in July, giving strong gains to the main indices of Wall Street and especially to the technological Nasdaq, which thus managed to get out of the bear market region after more than 100 days.

According to data released before the start of trading, the Consumer Price Index rose in July at an annual rate of 8.5%, down significantly from June’s 41-year high of 9.1%. A slowdown that was even significantly greater than the one expected by analysts, who expected a milder decline to 8.7%.

On a monthly basis, inflation remained unchanged, while the structural part of the Index, which excludes highly volatile food and energy prices, remained unchanged on an annual basis at 5.9% against market estimates for an acceleration to 6.1 %.

Although inflationary pressures remain more than intense in the American economy, the market seems to believe that after today’s measurement, the assessment of the head of the Fed, Jerome Powell, is confirmed, that the bank should now move more gently in the tightening of monetary policy.

The US central banker had indicated the above position in the latest rate hike of 75 basis points (second in a row) sparking a market counterattack, with the S&P now up more than 15% from June lows.

Tellingly, after the release of inflation data today, bets on the Fed’s next move in September completely reversed, with the odds of another giant 75 basis point rate hike plummeting to 32% from 68%. which it was before the announcements, with bets now leaning in favor of a 50 basis point increase.

However, not all market players seem to share the optimism sparked by the slowdown in inflation, which is mainly driven by falling petrol prices. Some analysts still believe that inflation continues to run at an alarmingly high rate as housing and food costs have risen significantly. Housing costs, which make up about a third of the CPI weighting, rose by 5.7% over the past 12 months.

“The persistence of high inflation was seen today, combined with strong labor market data released last week, and in particular potentially strong wage growth, prompting Fed officials to continue aggressive monetary policy tightening,” Rick Rieder, head of fixed income investing and head of the global allocation investment group at BlackRock, said in a comment.Rieder believed the Federal Open Market Committee would move forward with another 75 basis point rate hike at the meeting of September, the third in a row.

Victoria Fernandez, chief market strategist at Crossmark Global Investments, echoes the sentiment, saying markets overreacted on Wednesday as inflation data was not strong enough to prompt the Fed to change course.

“A lot of data is expected until then, but what I don’t think should be discounted is a major shift by the Fed taking its foot off the gas and hitting the brakes,” Fernandez told MarketWatch. “I don’t think that’s going to happen and it’s pretty much what the market has priced in to a degree today.”

However, the release of the inflation data today also led to a significant downgrade in US government bond yields, removing some of the pressure they usually exert on growth stocks.

Indicatively, after consecutive bearish sessions, the technology-weighted Nasdaq has regained its momentum, once again taking the lead in the market’s counterattack, as has been the case all along.

Indicators – statistics

Thus, the US market closed at its highest level since May, with the Nasdaq decisively leaving the bear market area and the Dow Jones the correction area.

In particular, the Dow Jones today added 535 points or 1.63% and closed at 33,309.51 points, achieving the target of an upward split of 32,877 points that marks its exit from the correction area, as it now writes gains of more than 10% from its recent lows.

Strong gains also for the broader S&P 500, which with a rise of 2.13% regained the level of 4,200 points and closed at 4,210.24 points

But the protagonist of the day was the technological Nasdaq, which with a jump of 2.89% ended at 12,854.81 points, decisively breaking the level of 12,775 points after climbing more than 20% higher than the low of 10,646 points recorded on June 16 and after 108 days it left the bear market area behind, according to Dow Jones Market Data. It is noted that this was the index’s longest stay in a bear market since 2008, when it plunged 54%, remaining in a bear market for a total of 218 days. After today’s close the tech index is 19.9% ​​off its November 2021 high

Of the 30 stocks in the blue chips index, only one closed in the red, Merck with losses of 0.37%, while all the rest recorded gains of 0.09% to 3.98% of Walt Disney, which was also the leading the cap rally, followed by Salesforce and Goldman Sachs.

Strong comeback for tech giants too, with Facebook parent Meta jumping 5.8%, Tesla rallying 3.9%, Amazon climbing 3.5% higher, and Alphabet, Apple and Microsoft to also follow with strong gains of 2.6%, 2.6% and 2.4% respectively.