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Why stocks posted a historic rebound after another hot inflation report

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Stock market investors can be forgiven for feeling a little dizzy after a day that saw stocks plummet in reaction to another round of hotter-than-expected inflation data, only to rally higher and extend gains until the closing bell.

What Gives – Did Investors Suddenly Get Inflation Approved? Improbable. But market experts pointed to a number of factors that paved the way for the rebound.

“While I certainly wouldn’t rate this morning’s gushing capitulation, the stock market is handling disappointing inflation reports much better than it was a short time ago,” Mark Arbeter, president of Arbeter Investments LLC, said in a note.

Here’s how to stack them. Dow Jones Industrial Average
DJIA,
+ 2.83%

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It’s down 550 points, or 1.88%, but The day ended with a gain of 827.87 points, or 2.8% at 30,038.72. It was the first time the Dow had risen at least 800 points in the same trading day as it fell by at least 500 points at its lowest level, according to market data from Dow Jones.

More relevant, on a percentage basis, the 5.16% swing between the intraday high and low for the Dow was the largest spread since April 6, 2020. The last time the Dow was up at least 3% during the close on a day it was as low as 1.88% was on August 9, 2011.

S&P 500 . Index
SPX,
+ 2.60%

It finished 2.6% higher after falling 2.39% at the session low. The last time the S&P 500 rose at least 2.5% to close was on a day it was down 2.39% on December 5, 2008.

The extreme volatility came after data showed that the overall CPI figure for September came in at 8.2%, down from 8.3%. But it was a rise in the core CPI number, which strips out volatile food and energy prices, that blamed the sell-off, posting a 0.6% monthly rise against Wall Street expectations of 0.4%. The increase in the base rate over the past year jumped to a new peak of 6.6% from 6.3%, marking the largest gain in 40 years.

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We see: Consumer prices jumped again in September and the CPI showed little lull in rising inflation

Stocks had already fallen sharply before the data. The S&P 500 has fallen for six sessions in a row, ending Wednesday at its lowest level since November 2020. The big cap index is still down 23% for the year so far, while the Dow is down more than 17% and the Nasdaq Composite is down more than 17%.
COMP,
-0.37%

Still off about 32%.

Analysts said that may have left the market open for some short-covering after the initial sudden reaction.

Monetary policy is rapidly becoming restrictive and this will undoubtedly lead to lower inflation. It looks like rates will rise slightly above 5% which is reason enough for some to return to stocks. “Today’s rally is likely to have gotten a boost from short covering as well, but given the rates path is higher, this market reversal won’t last long,” Edward Moya, chief markets analyst at Oanda, said in a note.

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Opinion: The stock market is ‘oversold’, but it pays to stay bearish

Arbeter noted that the S&P 500 holds major chart support at 3500, which is the 50% retracement of the bull market move away from its March 2020 low. Technical analysts view these retracement levels as support or resistance levels.

Arbiter said the next important support level is near 3400, the pre-pandemic high, and then 3200 which is a 61.8% retracement of the run from the pandemic lows.

“While the stock market is still very fragile, the ingredients are still there for a strong rally in the opposite direction. Of course, we’ve said this for a few weeks already, and so far, we’ve ended up with eggs on our face, a little lower than in the Opening this morning,” he said sarcastically.

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Billionaire George Soros is betting big on Alphabet

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The concerns surrounding the growth of big tech do not apply to George Soros.

The Federal ReserveThe decision to aggressively raise interest rates to fight inflationwhich is at 40-year highs, threatens to tip the economy into a tailspin RecessionMany analysts say.

This inflation, which particularly affects consumers, is a big problem for the tech sector, because tech products and services are the first to suffer spending cuts. Consumers tend to limit their discretionary purchases, while companies delay their investment in new appliances, for example.



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Bank of Canada stresses inflation remains too high, higher rates still needed By Reuters

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© Reuters. FILE PHOTO: Bank of Canada Governor Tiff Macklem walks outside the Bank of Canada building in Ottawa, Ontario, Canada on June 22, 2020. REUTERS/Blair Gable/File Photo

Written by Steve Shearer and Ismail Shakil

OTTAWA (Reuters) – Bank of Canada Governor Tiff Macklem said in testimony to the House of Commons on Wednesday that Canadian inflation remains broadly high and more interest rate increases will be needed to cool an overheating economy.

“Inflation has come down in recent months, but we have not yet seen an overall reduction in price pressures,” McClim said. “This tightening phase is going to end. We’re getting close, but we’re not there yet.”

After a strong jobs increase report for October, Canada’s annual inflation rate held steady in the same month at 6.9%, still well above the central bank’s 2% target, while core inflation measures were mixed, data showed last week.

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The Bank of Canada raised interest rates by 50 basis points last month to fight inflation, raising the interest rate to 3.75%, the highest level since the 4% seen in January 2008. It also predicted that growth would stall from the fourth quarter of this year until the middle of next year.

Money markets have discounted another 25 basis points from tightening by the Bank of Canada at its next policy decision on December 7, and see a 20% chance of a larger 50 basis point move.

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Oil shipping costs have soared as the war in Ukraine reshaped global trade

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Tankers are spending more time in the water after the energy break-up between Russia and Europe.

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