Stocks roar back after plunging at the opening bell

Stocks staged a dramatic turnaround Thursday, bouncing back from significant losses at the start of trading and finishing sharply higher. Investors were disheartened at first by the Consumer Price Index report, which showed continued inflation pressures. That added to fears that multiple big rate hikes from the Federal Reserve could be ahead. 

But stocks rallied as the day progressed. Investors focused more on strong earnings from the likes of Delta (DAL), Dow component Walgreens (WBA) and Wall Street giant BlackRock (BLK). It was a broad-based rally. All 30 Dow stocks finished in green and nearly all of the S&P 500 members closed higher, led by strong gains from materials, energy and financial stocks. 

The Dow surged 828 points, or 2.8%. That was the Dow’s biggest percentage gain of 2022.

The S&P 500 shot up 2.6%.

The Nasdaq rose 2.2%.

We’re running out of superlatives to describe today’s action on Wall Street. Amazing! Stupendous! Irrational? With a little less than an hour to go before the closing bell, the Dow was up more than 950 points, or 3.3%.

If those gains hold, the Dow will wind up with its biggest percentage and points gains of 2022, topping a 2.8% jump from early May. It needs to go up more than 932 points for it to be the largest point increase.

The Nasdaq and S&P 500 were surging too, rising 2.7% and 3% respectively.

Inflation, shminflation. Stocks were soaring in midday trading Thursday, despite the fact that the consumer price index rose more than expected. All 30 Dow stocks were higher, with the energy and financial sectors posting the biggest gains.

The Dow was up more than 800 points, or 2.8%.

The S&P 500 rose 2.5%.

The Nasdaq Composite gained 2%.

It was a dramatic turnaround for stocks, which plunged after the opening bell after the CPI report came out. The Dow was down 550 points early on in the trading session. But the severe sell-off might have been overdone.

Some traders were suggesting that the market may (finally) have hit bottom after the S&P 500 briefly dipped below the key 3,500 level before rebounding.

Residential apartment buildings are seen in New York City in July. 

Shelter costs make up a big chunk of the consumer price index. So with rents rising dramatically over the past year (along with housing prices), it’s no wonder that CPI numbers continue to come in higher than expected. But there is some confusion about whether rent increases are finally peaking or not.

The government said in the CPI report that both rent and owners’ equivalent rent (which measures how much a homeowner estimates they could get if they rented their property) rose 0.8% from August. The increase in owner’s equivalent rent was the biggest since June 1990.

But a report from real estate brokerage firm Redfin (RDFN), also released Thursday, showed that the median monthly rent nationwide fell 2.5% in September.

“The rental market is coming back down to earth because high rents and economic uncertainty have put an end to the pandemic moving frenzy of 2020 and 2021, when remote work fueled an enormous surge in housing demand,” said Redfin deputy chief economist Taylor Marr.

“We expect rent growth to slow further into 2023 as Americans continue to hunker down and more new rentals hit the market,” Marr added.

If that’s true, inflation pressures could finally start to subside more dramatically. Investors may be hoping that’s the case, which is one reason to justify the big stock market surge Thursday.

“There is a disconnect. With Redfin coming out and saying there is a decline in rents, maybe the Fed has something to glob on to that will allow it to slow the rate hikes,” said Lamar Villere, portfolio manager with Villere & Co.

Stop this market! I want to get off! Stocks roared back in late morning trading after plunging at the opening bell. The Dow, S&P 500 and Nasdaq were all soaring in late morning trading.

Possible catalysts? Even though the hotter-than-hoped-for inflation report is sparking fears of more big rate hikes from the Federal Reserve, some optimists are starting to see light at the end of the Fed tightening tunnel.

Economists at Barclays said in a report Thursday that they now expect another three-quarters of a percentage point rate increase in November and December and then a half-point hike at the Fed’s February 2023 meeting.

Beyond that? A pause. And, eventually, rate cuts. Barclays predicts that the central bank will lower rates by a quarter of a point at each of its last three meetings in 2023.

The Dow was up more than 600 points, or 2.1%, in late morning trading.

The S&P 500 rose 2%.

The Nasdaq Composite gained 1.9%.

So investors might be playing the long game and betting on Fed easing within the next year. But is that a pipe dream?

Andrew Patterson, senior international economist at Vanguard, told me he thinks rate cuts are unlikely until 2024. Patterson said the Fed — and investors — need to still be concerned about how so-called core inflation (excluding food and energy) has yet to cool dramatically.

“We’re not seeing the trends we would have hoped for in core CPI,” he said.

Markets recovered mid-morning Thursday from earlier lows following red-hot inflation data that sent the Dow plunging more than 500 points.

The Dow was down 185 points, or 0.6%.

The S&P 500 was down 1.1%.

The Nasdaq Composite was 1.9% lower.

A man shops for produce at a supermarket in Washington, D.C., on August 19.

Prices at the grocery store continued to soar last month, adding even more pressure to shoppers’ wallets.

The food at home index, a proxy for grocery store prices, increased 0.7% in September from the month prior and 13% over the last year, according to new government data released Thursday.

Just about everything got more expensive in September.

Fruits and vegetables rose 1.6% for the month, while cereals and bakery products rose 0.9%. Other groceries increased 0.5% in September, following a 1.1% increase in August. 

Meats, poultry, fish and eggs rose 0.4% over the month and beverages increased 0.6%.

Prices on many of these items are up double-digits annually.

Stocks deflated Thursday following the inflation report, but there were a handful of blue chip companies holding up well. Three in particular were solidly in green thanks to strong earnings.

Drugstore giant Walgreens (WBA) was one of the few Dow winners, gaining 3% after reporting a better-than-expected profit and healthy guidance for 2023.

And Domino’s (DPZ) delivered for investors. The pizza king’s sales topped forecasts, even though the strong dollar ate into revenue a bit. Domino’s shares rose 9%, making it the top performer in the S&P 500.

Delta (DAL) shares also took flight, thanks to solid sales and a robust outlook.

It just goes to show that even in a bear market and with recession fears swirling due to concerns about uber-aggressive rate hikes from the Fed to try and stomp out inflation, investors still need to focus on fundamentals. There are always buying opportunities somewhere.

Homes in Morgan Hill, California, on October 4.

After taking a breather last week, mortgage rates rose again – moving even closer to 7%.

The 30-year fixed-rate mortgage averaged 6.92% in the week ending October 13, up from 6.66% the week before, according to Freddie Mac. It is the highest average rate since April 2002. A year ago, the 30-year fixed rate stood at 3.05%.

Mortgage rates have more than doubled in the past year as the Federal Reserve pushed ahead with its unprecedented campaign of hiking interest rates in order to tame soaring inflation. The combination of the central bank’s rate hikes, investor’s concerns about a recession and mixed economic news has made mortgage rates volatile over the past several months.

“We continue to see a tale of two economies in the data,” said Sam Khater, Freddie Mac’s chief economist. “Strong job and wage growth are keeping consumers’ balance sheets positive, while lingering inflation, recession fears and housing affordability are driving housing demand down precipitously.”

He said the next several months will undoubtedly be important for the economy and the housing market. Already, home sales are dropping and prices are cooling as well.

The average mortgage rate is based on a survey of conventional home purchase loans for borrowers who put 20% down and have excellent credit, according to Freddie Mac. But many buyers who put down less money up front or have less than perfect credit will pay more.

A shopper holds a basket inside a grocery store in San Francisco, CA, in May 2022.

Social Security recipients will receive an annual cost-of-living adjustment of 8.7% next year, the largest increase since 1981, the Social Security Administration announced Thursday.

The spike will boost retirees’ monthly payments by $146 to an estimated average of $1,827 for 2023.

The hefty increase, which follows a 5.9% adjustment for this year, is aimed at helping Social Security’s roughly 70 million recipients contend with the high inflation that’s been plaguing the US since last year.

“Will the COLA be enough to keep up with inflation? It’s too early to say,” said Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League, an advocacy group. “It depends on what inflation is going to do from October onwards.” 

The adjustment is the highest that most current beneficiaries have ever seen, but that’s because it is based on an inflation metric from August through October, which is also around 40-year highs. 

A related metric, the Consumer Price Index, increased 8.2% in September, compared with a year ago, the Bureau of Labor Statistics announced Thursday. 

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There’s something you should consider before getting too alarmed by today’s big CPI number.

A large part of the monthly increase in September comes from shelter costs, up 0.8%, from the previous month. Shelter accounts for almost 42% of core CPI.

Economists say that this data is skewed and can paint a false picture of how high inflation currently is.

There are two main reasons for that:

One, the majority of shelter costs – about 30% of CPI – come from something called owners’ equivalent rent. Instead of factoring in the cost of purchasing a house, the index attempts to factor in how much rent homeowners would pay IF they rented rather than owned their home.

The thing is, homeowners do own their homes. Inflation on hypothetical rent prices for homes they don’t rent isn’t actually being felt. Plus, rent and home prices don’t always move in sync, and so this can create a false equivalency

Second, research by Goldman Sachs and The Dallas Fed finds that actual rent and owners’ equivalent rent lag the rest of CPI by a full year. That means a current deceleration in rent prices won’t be fully factored into inflation data until October 2023.

The New York Stock Exchange seen on September 23.

US stocks opened lower on Thursday after new inflation data came in higher than Wall Street had expected. 

The consumer price index, or CPI, rose 0.4% in September from the previous month, more than the 0.2% estimate from analysts surveyed by Refinitiv. On an annual basis, inflation was up 8.2%.

CPI is an inflation gauge closely watched by the Federal Reserve. The elevated number stoked investor fears that the Fed is likely to continue its aggressive regimen of interest rate hikes at its meeting in November, bringing more pain to the economy and weighing on markets. 

The Dow fell 556 points, or 1.9%, on Thursday morning.

The S&P 500 was down 2.2%.

The Nasdaq Composite was 3% lower.

So much for the Federal Reserve being able to slow down those interest rate hikes. Following a red-hot CPI report, which showed no sign of inflation abating, fed funds futures are now pricing in a 97% chance of a fourth straight increase of three-quarters of a point at its November 2 meeting…and a 3% probability of a full point hike.

That would bring rates to a level of 4% to 4.25%. Investors are betting on another massive hike in December, too.

Futures are pricing in a 66% likelihood that rates will be in a range of 4.5% to 4.75% after the December 14 meeting and a 2% chance that rates will hit 4.75% to 5%. (So long, year-end Santa Claus market rally? Stocks tanked Thursday after the CPI report.)

“This is the Fed’s nightmare scenario,” said Jan Szilagyi, CEO and co-founder of Toggle AI, an investment research firm in a report Thursday morning.

A key measure of inflation came in hotter than investors had hoped, giving the Fed more leeway to hike rates by a historic level.

Dow futures tumbled more than 400 points, or 1.5%.

S&P 500 futures fell 1.8%

Nasdaq futures were 2.6% lower.

People shop at a supermarket in Santa Monica, California, on September 13.

American consumers continue to be punished by high prices, despite lower gas costs and unprecedented action from the Federal Reserve to tame inflation, according to data released Thursday by the Bureau of Labor Statistics.

Annual inflation rose by 8.2% in September, a slower increase than the 8.3% rise seen in August, according to the Consumer Price Index, which measures the changes in prices for a basket of consumer goods and services. Economists had projected the pace of price increases would slow to 8.1% last month.

On a monthly basis, overall consumer prices increased by 0.4% from August.

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BlackRock, the owner of the super popular iShares family of exchange-traded funds and biggest asset management firm on the planet, is not immune to the market madness on Wall Street. BlackRock reported a 15% drop in revenue for the third quarter. The company blamed the weakness on “the impact of significantly lower markets and dollar appreciation.”

The company’s earnings and revenue did beat Wall Street’s estimates, helping to send shares of BlackRock (BLK) up a bit in premarket trading. But volatility on Wall Street is clearly making investors nervous. That is hurting BlackRock.

The company’s assets under management, which topped $10 trillion at the end of the fourth quarter of 2021, have steadily slid this year. The trend continued in the third quarter, with BlackRock reporting assets under management of just under $8 trillion…down from $8.5 trillion at the end of June.

One bright spot: The Federal Reserve’s rate hikes have lifted bond yields, which pushed more investors away from stocks and into fixed income assets. BlackRock said that it had $37 billion in net inflows to its bond ETFs.

Delta Air Lines posted record revenue of $14 billion, up 11% from the same period in pre-pandemic 2019, and it did so with only 83% of the seat capacity it had at that time.

Income of $1.3 billion fell just short of forecasts but the shortfall was less than the impact of Hurricane Ian on its operations, as the airline said the storm cost it about 3 cents a share, or $19.4 million.

But what sent shares of Delta climbing 4% in premarket trading was its guidance of earnings per share of between $1 to $1.25 in the fourth quarter. While that was down from the $1.51 a share in the third quarter, it was well above forecast of 79 cents a share by analysts surveyed by Refinitiv. The guidance helped lift shares of rivals American, United and Southwest Airlines as well.

CEO Ed Bastian, in an interview Thursday on CNBC, said he believes there’s enough pent-up demand for travel to fill seats into early next year, even if the US economy falls into recession as many now fear.

“One busy summer isn’t going to quench all the demand for travel that we’ve seen,” he said. “Our planes have been 90% full, or more full, since the first of April. And that continues into the fourth quarter as well. The holiday booking period is strong. Business bookings are continuing to improve. I think it’s going to be a terrific tailwind into the new year.”

Bastian said Delta solved its reliability problems that angered passengers earlier in the year, problems that caused widespread cancellations and prompted Bastian to apologize to customers three months ago. But he said in the second half of the third quarter, out of 120,000 flights on its mainline operations, it had only 108 cancelled flights, not counting the three days affected by Hurricane Ian.

Stocks: US stock futures were somewhat higher Thursday ahead of another key inflation report that is expected to show consumer prices returned to a 40-year high by one measure. Stocks spent yet another day in the red Wednesday. Dow futures were up 140 points or 056%. The S&P 500 rose 0.5% and the Nasdaq was 0.2% higher.

CNN Business Fear & Greed Index: 19 = Extreme Fear

Oil & gas: US oil was flat at $87 a barrel. Average US gas prices fell to $3.91 a gallon.

Jerome Powell and other members of the Federal Reserve are obsessed with choking off inflation once and for all, even if the Fed’s series of aggressive rate hikes slow the economy to a crawl. That could be bad news for consumers, investors and Corporate America.

What’s more, many market experts and economists note that the rate of inflation, while still uncomfortably high, is falling and should continue to decline – but there is a noted lag effect. Fed vice chair Lael Brainard admitted as much in a speech Monday, saying that “policy actions to date will have their full effect on activity in coming quarters.”

Still, the Fed isn’t done raising rates. Investors are pricing in the strong probability of a fourth consecutive three-quarters of a percentage point hike at the Fed’s next meeting on November 2. And the chances of a fifth straight hike of that magnitude at the Fed’s December 14 meeting are also on the rise.

It seems that Powell wants to atone for his mistake of repeatedly calling inflation “transitory” for much of last year. So the Fed is going to keep raising rates to prove that it is taking inflation seriously, even if that leads to a bigger pullback in stocks…and tipping the economy into a recession.

Needless to say, that’s a problem. Especially since the Fed has two mandates: price stability and maximum employment. That means the jobs market might get hit due to the Fed’s laser-like focus on inflation.

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We’ll get another look at consumer inflation Thursday at 8:30 am ET. Yesterday, a different measure of inflation increased faster than expected in September, raising concerns that the Federal Reserve’s aggressive rate hikes are having limited impact in bringing inflation under control.

The US Producer Price Index, which tracks what America’s producers get paid for their goods and services, rose at an annual pace of 8.5% in September, down slightly from the 8.7% rise in August, the Labor Department reported Wednesday. But the report showed prices rose 0.4% month-over-month.

Economists surveyed by Refinitiv had been expecting the 12-month rise in wholesale prices to slow to an 8.4% increase, and the month-to-month increase to come in at 0.2%, compared to the 0.1% decline in August.

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