Wild Comeback: Dow Ends 124 Points Higher

Investors dialed back their expectations for a 50bp Fed cut next week after a somewhat hot CPI report. Overall CPI slowed to 2.5% in August YoY from 2.9% in July, Core CPI remained unch at 3.2% YoY as expected, but Core CPI rose 0.3% MoM vs +0.2% expected. Mkts now price in a… pic.twitter.com/ob3rNjfepg

— Holger Zschaepitz (@Schuldensuehner) September 11, 2024

The US stock market experienced a wild ride on Wednesday, with the Dow Jones Industrial Average initially plunging by as much as 700 points, or 1.7%, in early trading. However, by the end of the day, the Dow had staged a remarkable comeback, closing about 124 points higher, or 0.3%. The S&P 500 and Nasdaq Composite also followed a similar pattern, starting the day in negative territory but managing to turn positive by the afternoon.

The S&P 500 gained around 1%, while the Nasdaq Composite saw an impressive 2.2% rise.

Rule of 20, which says stocks are fairly valued when S&P 500’s P/E and CPI y/y add to 20, suggests S&P 500 still looks quite expensive pic.twitter.com/bEOZiG1mCS

— Liz Ann Sonders (@LizAnnSonders) September 12, 2024

The market volatility was primarily driven by the latest Consumer Price Index (CPI) report, which showed an annual price increase rate of 2.5%, the lowest since February 2021. This initially spooked investors who were hoping for a more significant interest rate cut from the Federal Reserve in their upcoming meeting.

📈#Nifty hits record high after 8 sessions; Up over 400 points mainly contributed by #BhartiAirtel, #RelianceIndustries

Here's how the markets panned out today! #StockMarket pic.twitter.com/6w2RbDvc4x

— ET NOW (@ETNOWlive) September 12, 2024

However, as traders digested the data, the core CPI—which excludes volatile food and energy prices—rose by 0.3%, surpassing economists’ expectations of a 0.2% increase.

Dow rebounds amid market swings

This core inflation data is closely watched by Fed officials as it provides a clearer picture of long-term price trends.

Given the unexpected rise in core inflation, Fed officials are expected to be cautious in their upcoming rate decisions. Before the CPI data release, traders had anticipated a 34% chance of a half-point rate cut, but this expectation dropped to 15% post-release, with an 85% likelihood of a quarter-point cut instead. Lower interest rates are generally favored by investors as they reduce borrowing costs for companies, potentially increasing profitability.

September has historically been a volatile month for stocks, and Wednesday’s swings were in line with this trend. As the market settles after the trading day, levels might change slightly. Investors will continue to monitor upcoming economic data and political developments to gauge the direction of the stock market in the near future.