Dow Jones climbs 1,200 points on inflation report: Why market rally may have room to run

Dow Jones futures rose slightly overnight, along with S&P 500 and Nasdaq futures.


The stock market rallied on Thursday after a cooler-than-expected CPI inflation report, with the Dow Jones at 1,198. Gains in prices and core prices were lower than expected, strengthening the case for slower Fed rate hikes. Bond yields and the dollar fell.

If inflation continues to ease, the Fed could choose to end rate hikes earlier than Fed chief Jerome Powell suggested last week.

Many of the big moves were in low stocks. apple (AAPL), Microsoft (MSFT), parent of Google Alphabet (GOOGL), Facebook-parent Meta Platforms (META), (AMZN) and Tesla ( TSLA ) were all big winners on Thursday, but MSFT stock was the only one to move above the 50-day line. Nvidia (NVDA), which has a higher market cap than META stock now, has bounced back after retrieving the 50-day line, but still has a lot of work to do.

Many struggling cloud software stocks posted double-digit gains on Thursday. Digital Turbine ( APPS ) surged 61% after earnings, but that’s not even a two-month high.

However, investors should definitely consider adding more exposure and look to building stocks.

However, there weren’t many actionable stocks on Thursday. But GlobalFoundries (GFS), Enphase Energy (ENPH), Griffin (GFF), Builders FirstSource (BLDR) and General Motors (GM) all flashing various market signals.

GM stock was added to SwingTrader and was Thursday’s IBD Stock of the Day. ENPH stock is on the IBD Leaderboard Watch List and is on the IBD 50 List.

Dow Jones Futures Today

Dow Jones futures rose 0.2% against fair value. S&P 500 futures rose 0.25% and Nasdaq 100 futures rose 0.3%.

Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.

Join IBD’s experts as they analyze stocks that can act in the stock market’s rally on IBD Live

Stock market rally

The stock market rally got off to a strong start and stayed that way throughout Thursday, closing at session highs.

Dow futures jumped ahead of the open on the surprisingly tame CPI inflation report. October consumer prices rose 0.4% or 0.3% excluding food and energy. CPI inflation fell to 7.7%, the lowest since January. Core inflation eased to 6.3% versus projections to remain at a 40-year high of 6.6%.

The bulls cheered and sighed after finally getting a positive indication on inflation.

The Dow Jones Industrial Average jumped 3.7% in Thursday trading. The S&P 500 5.5%. The Nasdaq composite gained 7.35%. The small-cap Russell 2000 jumped 6.1%.

The yield on the 10-year note fell 32 basis points to 3.83%, a one-month low. The dollar suffered its biggest drop in years, continuing last week’s sharp losses.

Markets now see an 81% chance of a 50 basis point Fed rate hike in December. Ahead of the CPI inflation report, there was still a solid chance of a fifth consecutive 75 basis point increase. In particular, there is now a 50-50 chance of just a quarter of a point Fed rate hike in February.

Bitcoin rebounded to around $17,500 on Thursday night after crashing to a two-year low below $16,000 on Wednesday afternoon.

US crude oil prices rose 0.6% to $86.47 a barrel. Natural gas fell 6.4%.

Megacap stocks

Apple stock rose 8.9%, rebounding from its worst close in nearly four months. META stock jumped 10.25%, continuing a mini-rally from bear market lows amid big job cuts and other spending. Amazon’s stock jumped 12.2% from a 30-month low on Wednesday as the e-commerce giant announced a cost-cutting overhaul.

Microsoft stock soared 8.2% to a 50-day high. Google stock fell 7.6% but remains well below its 50-day line.

Tesla stock jumped 7.4%, but that was still a day after falling to a two-year low on Wednesday.

Nvidia stock rose 14.3%, continuing a rally that began on October 13. Nvidia earnings are expected on November 16th.


Among the top ETFs, the Innovator IBD 50 ETF (FFTY) gained 3.1%. The iShares Expanded Tech-Software Sector ETF ( IGV ) rose 9.1%, led by MSFT stock. VanEck Vectors Semiconductor ETF (SMH) screamed 10.2% higher. NVDA stock is a big holding.

The SPDR S&P Metals & Mining ETF (XME) rose 5.5% and the Global X US Infrastructure Development ETF (PAVE) rose 5.65%. The US Global Jets ETF (JETS) rose 4.9%. The SPDR S&P Homebuilders ETF (XHB) raised the roof with a 10.3% gain. The Energy Select SPDR ETF (XLE) rose 2.2% and the Financial Select SPDR ETF (XLF) advanced just over 5%. The Health Care Select Sector SPDR Fund (XLV) rose 2.5%.

Reflecting the most speculative stocks, the ARK Innovation ETF ( ARKK ) charged 14.5% higher and the ARK Genomics ETF ( ARKG ) 11.1% higher. Tesla stock is a major holding in Ark Invest’s ETFs.

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Market Rally Analysis

The stock market rally had a huge gain on the CPI inflation report. The S&P 500 and Russell 2000 broke above their 50-day moving averages, with the former clearing recent highs and the latter eschewing the 200-day moving average. The Dow Jones, which is leading this uptrend, bounced off the 200-day line to its best levels since its August highs.

The Nasdaq, the clear laggard in the market’s rally thus far, jumped to break above its 50-day line. Amazon and several battered megacaps and cloud stocks led the way, while Nvidia and other brands continued their recent gains, but mostly below market areas.

Thursday’s action was a day ahead across all major indexes, with big volume gains on the NYSE and Nasdaq. This provides more confidence in the stock market rally.

The CPI inflation report was just one data point, but it was what the Fed wanted and needed to see. It’s worth noting that it will be a few weeks before the next wave of Fed-critical reports is released. This suggests a favorable backdrop for the market rally, at least during this period.

A positive follow-up would be for the Nasdaq to move decisively above the 50-day line, clearing the October highs just above 11,200. The S&P 500 pushing above the 200 day would be a very strong signal.

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Top Stocks

There weren’t many top stocks in position on Thursday. A few strong names look stretched, while Thursday’s big winners were mostly battered techies like Google that need a lot of repair work.

It is unclear which groups will lead the market rally. But there are many interesting groups and sectors.

Medical stocks, such as biotechs and health insurers, which have been leaders in the market’s rally, pared Thursday’s big gains or retreated with riskier growth names in favor. Is it just a hit?

Defensive names had a rough exit, such as e.g Hershey (ESAE) and other stocks of food products.

A wide range of housing-related stocks, including manufacturers, suppliers and retailers, are clearing bases or moving above long-term moving averages or trend lines. That includes Dr. Horton (DHI), Tempur-Sealy (TPX) and BLDR stock.

Some other retailers, along with several restaurants and some consumer toys, are showing strength, from Crocs (CROX) to Wingstop (WING) in GM stock. Some financials, lithium, solar, agricultural stocks and steel also look good, incl Steel Dynamics (STLD), Albemarle (ALB), CF Industries (CF), Charles Schwab (SCHW) and ENPH stock.

Some infrastructure companies are located in or near market zones, incl Quanta Services (PWR).

Energy stocks, which didn’t do much on Thursday, may continue to advance.

Networking stocks look strong, incl Digi International (DGII). Some brand names look interesting as the sector rebounds after a long decline. This includes the GFS stock, which is holding above early records.

But for large-caps like Apple, Microsoft and Tesla stock, it could be a while before they get ahead. The same goes for cloud software, with the risk that some may not recover for years, if ever.

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What should we do now

The stock market rally showed strength on Thursday and there is a plausible story that the uptrend has legs after the October inflation report. But for now it’s just a story.

Ultimately, investors should focus on what the market is doing now by following the action of major indices and leading stocks.

This signals that it is time to increase the exposure, but do not rush. If this uptrend in the market has legs, there will be plenty of time for big investments.

The limited number of stocks that could be triggered on Thursday was a reason not to buy heavily. Investors could choose to buy a broad market or sector ETF, such as SPY or SMH.

But there are many stocks and sectors that look interesting. Investors should keep their watch lists up to date.

Read The Big Picture every day to stay in sync with market direction and top stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.


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