US stocks hit new highs on Friday as tepid inflation data fueled optimism among investors that the Federal Reserve can stay on track to cut interest rates, boosting the US economy and justifying higher stock valuations.
The Dow Jones Industrial Average rose by 561 points, or 1.2%. The S&P 500 added about 1%, while the Nasdaq Composite rose 1.3%. All three major indexes hit new all-time highs intraday in the session, with the S&P 500 surpassing 6800 for the first time in its history. The Dow, which includes 30 stocks, is on track to secure its first close above the 47,000 level.
The consumer price index report for September – which was delayed due to the US government shutdown – rose 0.3% from the previous month, bringing the annual inflation rate to 3%, according to the Bureau of Labor Statistics. That’s slightly less than the 0.4% and 3.1% that economists polled by Dow Jones expected. Excluding food and energy, core CPI was 0.2% last month and 3% on a 12-month basis, also below Dow Jones forecasts of 0.3% and 3.1%, respectively.
Following the release of the CPI data, traders increased their bets that the Fed will cut interest rates at its remaining two meetings this year. The odds of a December cut initially jumped to 98.5% from about a 91% outlook before the data, according to CME’s FedWatch tool. The odds of a cut next week remained above 95%.
Hopes that further interest rate cuts will boost economic activity drove bank stocks higher during the trading day, with key names such as JPMorgan, Wells Fargo and Citigroup rising more than 2%. Other names in the financial sector, including Goldman Sachs and Bank of America, have similarly advanced.
Certainly, the main annual rate represented a slight increase compared to the previous month. Most of the government’s economic data – including weekly and monthly employment data – remains delayed due to the shutdown.
