Market Soars, Dollar Slides As Moderate Inflation Signals Potential Fed Policy Shift: What's Driving Markets Tuesday?

Stocks were surging on Tuesday, fueled a lower-than-expected Consumer Price Index (CPI) report in October, cementing market bets on the end of Fed rate hikes.

The headline CPI index held flat on a month-over-month basis in October, while it climbed 3.2% on an annual basis, below forecasts of a 3.3% rise.

Core inflation, which strips out energy and food items, also eased more than expected to 4%, marking the lowest print since September 2021.

Traders discarded expectations for any additional Federal Reserve rate hikes this year and are now anticipating four rate cuts beginning in May next year.

Cues From Tuesday’s Trading:

The S&P 500 Index rallied 1.9%, the Dow Jones rose 1.4% and the tech-heavy Nasdaq 100 soared 2.1%.

Small caps outperformed, with the Russell 2000 rocketing 4.8%, marking its best session in over a year.

US Index Performance On Tuesday

Analyst Color:

Chris Zaccarelli, chief investment officer for Independent Advisor Alliance highlighted the CPI’s notable drop year-over-year, signaling an end to the Fed’s rate hikes.

Despite recession uncertainties, strong consumer spending, low unemployment, and robust corporate profits suggest a continued market rally, according to the expert.

“People begin to accept that higher rates are off the table, which should push stock and bond prices higher,” the analyst said.

Fed’s Speakers Comments On October CPI Data

“Inflation progress continues, economic growth has been strong, the labor markets vibrant,” Chicago Fed President Austan Goolsbee said on Tuesday at the Detroit Economic Club.

The Fed official noted that October CPI data looked pretty good. He said that this year could see the fastest non-war-related one-year fall in U.S. CPI inflation in a century, with an unemployment rate that never gets above 4%.

Tuesday’s Trading In Major US Equity ETFs

• The SPDR S&P 500 ETF Trust (NYSE:SPY) was 1.9% higher to $448.57
• The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) rose 1.4% to $348.32
• The Invesco QQQ Trust (NASDAQ:QQQ) climbed 2.1% to $385, according to Benzinga Pro data.

Looking at S&P 500’s sector ETFs:

• All sectors traded in the green, showing robust daily gains. The strongest was the Real Estate Select Sector SPDR Fund (NYSE:XLRE), up 4.7% for the day, followed by the Consumer Discretionary Select Sector SPDR Fund (NYSE:XLY), up 3.4%.
• Solar stocks as tracked by the Invesco Solar ETF (NYSE:TAN) rallied as much as 9.9%, showing the best performance among industries.

Stocks In Focus:

• Fisker, Inc. (NYSE:FSR) slumped over 22% after the electric vehicle maker reported a wider-than-expected third-quarter loss and weak deliveries.
• Home Depot, Inc. (NYSE:HD) shares rose over 6% after the home improvement retailer reported third-quarter results that beat expectations. The company narrowed its guidance ranges for 2023.
• Enphase Energy Inc. (NASDAQ:ENPH) rose 17%, aided by the reduction in expected interest rates. Industry peers such as SolarEdge Technologies Inc. (NASDAQ:SEDG) and First Solar Inc. (NASDAQ:FSLR) rallied 13%.
• Commercial real estate companies including Alexandria Real Estate Equities, Inc. (NYSE:ARE) and Boston Properties Inc. (NYSE:BXP) rocketed 10%.

Commodities, Bonds, Other Global Equity Markets:

Crude oil fell 0.2%, with a barrel of WTI-grade crude trading at $78.26. The United States Oil Fund ETF (NYSE:USO) was 0.2% lower to $72.81.  

Treasury yields plummeted, with the 2-year yield down by 21 basis points to 4.83% and the 10-year yield down by 18 basis points to 4.46%. The iShares 20+ Year Treasury Bond ETF (NYSE:TLT) was 1.9% higher for the day. 

The dollar fell, with the U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE:UUP), down 1.4%. The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust (NYSE:FXE), rose 0.9% to 1.0872.

European equity indexes closed sharply in the green. The SPDR DJ Euro STOXX 50 ETF  (NYSE:FEZ) rose 3%. 

Gold rose 0.9% to $1,962/oz, while silver rallied 3.5%. Bitcoin (CRYPTO: BTC) was 1.4% lower to $35,974.

Staff writer Piero Cingari updated this report midday Tuesday. 

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