Dow posts best day of 2022 after still-hot inflation reading

Investing

Stocks shot upwards Thursday in a surprising response to data revealing stubbornly high inflation, as investors interpreted the data as a “last gasp” for inflation in one of the most volatile trading days in recent history.

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Vital Knowledge analysts wrote in a Thursday note they’re “quite confident that the economy is evolving faster than the formal gov’t statistics are capturing, and this means the inflation/Fed fears are way overblown.”

The “market reversal won’t last long,” OANDA senior market analyst Edward Moya wrote in a Thursday note, calling Thursday’s meteoric rise “a head-scratcher” given the Fed remain on a path to raise rates past 5%.

The Labor Department released another key inflation metric Wednesday, the producer price index, which measures wholesale inflation. Producer prices rose 0.4% from August to September, surpassing a 0.2% jump estimated by economists. The stock market crashed after the release of the latest consumer price index reading, with the S&P, Dow and Nasdaq each falling by 3.9% or more, the largest single-day declines of 2022 for each index. Stocks typically fall as interest rates rise (or are expected to rise) because companies tend to become less willing to borrow money at higher rates and consumers tend to cut back spending.

Thursday breaks a six-day losing streak for all three major indexes, which marked the first time the S&P has suffered two six-day losing streaks in a calendar year since 2018.

Citigroup, JPMorgan Chase, Morgan Stanley and Wells Fargo all report earnings Friday morning. The major banks’ financial results are expected to be “fairly robust,” UBS analysts Solita Marcelli and Bradley Ball wrote in a Tuesday note, but noted the market will primarily focus on recession indicators like how many loans the institutions are giving out, how well capitalised the banks are and the quality of their credit.

Perhaps most important for the market generally is what the banks’ brass have to say about the economy broadly and recession expectations. JPMorgan Chase CEO Jamie Dimon said earlier this week the U.S. will probably enter a recession in the next six to nine months and warned the S&P could fall another 20%.

This article was first published on forbes.com

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