After a report revealed that U.S. inflation declined much more than anticipated last month, markets erupted in excitement, and Wall Street soared to its highest day in more than two years.
The S&P 500 rose 5.5%, the Dow Jones Industrial Average rose 1,200 points, and the Nasdaq composite roared 7.4% higher, packing what might have been a year’s worth of gains into a single day.
Investors saw the statistics as evidence that the worst of high inflation may finally be behind us, but analysts cautioned that it is too soon to declare triumph.
Prices rose for everything from metals to European equities.
Even bitcoin increased to partially recover from its sharp decline from earlier days brought on by the most recent confidence crisis in the cryptocurrency business.
The bond market saw some of the most dramatic tradings, with Treasury yields dramatically falling as bets on how aggressively the Federal Reserve will raise interest rates to contain inflation were reduced.
These increases have been the leading cause of Wall Street’s difficulties this year and are raising the prospect of a recession.
Mortgage and other loan rates are influenced by the yield on the 10-year Treasury, which decreased to 3.82% from 4.15%.
The result was on course to experience its most significant daily decline since 2009, which is a major move for the bond market, according to Tradeweb.
The two-year yield, which more accurately predicts Fed action, dropped from 4.62% to 4.32%, on track to experience its most significant decline since 2008.
U.S. government data revealing that inflation dropped in October for a fourth straight month after reaching a peak of 9.1% in June was the source of all the commotion.
The figure of 7.7% exceeded the economists’ expectations of 8%.
Perhaps more significantly, inflation decreased more than anticipated after considering only the effects of energy and food prices.
The Fed places more emphasis on that metric. Inflation increased from September to October.
According to Brian Jacobsen, senior investment strategist at All Global spring Investments, “the month-over-month rate of inflation is far more relevant.” According to that metric, inflation is still high, but not alarmingly.
Slower inflation may prevent the Fed from taking the most drastic course when raising interest rates. It increased its key rate from almost zero in March to 3.75% to 4%.