Stocks Jump on Hopes of Lower Inflation

Stocks jumped on Tuesday, as a gauge of wholesale inflation rose more slowly than expected, bolstering recent data that showed signs of consumer inflation cooling.

The S&P 500 moved 1.3 percent higher in early trading on Tuesday, after the release of the Producer Price Index, which rose 0.2 percent in October, slower than the 0.4 percent increase expected by economists surveyed by Bloomberg.

The positive surprise added to data last week that also showed consumer prices rising more slowly than expected, bolstering hopes among investors that the Federal Reserve would soon slow its campaign of raising interest rates to fight inflation, which has also weighed on stock prices.

“Right now the only thing that matters is inflation and I think you’re seeing that we’re having more economic data points support the idea that inflation is coming down quickly,” said Edward Moya, a senior market analyst at OANDA.

There were also signs on Tuesday that consumer spending was holding up despite high inflation, with Walmart reporting higher-than-expected quarterly sales and raising its annual profit forecast headed into the holiday shopping season. The company’s stock rose strongly, as did the shares of other major retailers like Amazon and Target.

“There’s more good news for our economy this morning, and more indications that we are starting to see inflation moderate,” President Biden in a statement on Tuesday.

Fed officials have tried to temper investor enthusiasm after bumper gains for stocks in recent trading sessions, saying that the job of raising interest rates to help reduce inflation is still far from complete.

“The worst thing you can do is stop, and then it takes back off again,” Christopher Waller, a Fed governor, said of the Fed’s actions to address inflation at an event in Australia on Monday morning. “Everybody should just take a deep breath, calm down — we’ve got a ways to go yet.”

However, investors expect that the Fed could move more slowly when increasing interest rates, taking time to assess the effects. The Fed has raised interest rates by three-quarters of a percentage point at its past four meetings, but it is widely expected to step down to a half-point move in December.

Lael Brainard, the Fed’s vice chair, said during an interview at a Bloomberg event on Monday that she would favor slowing the pace of increases soon so that the central bank can take stock of how much economic tightening it has done.

“By moving forward at a pace that’s more deliberate, we’ll be able to assess more data,” Ms. Brainard said.

Elsewhere, Hong Kong’s Hang Seng index rose 4.1 percent after what were deemed to be constructive talks between Mr. Biden and his Chinese counterpart, Xi Jinping. The move also offered a tailwind to stocks in the United States in morning trading.

Jeanna Smialek contributed reporting.


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