U.S. markets rallied after falling sharply in opening trading Thursday after an unexpectedly hot inflation report strengthened the Federal Reserve’s position on the need for more aggressive interest rate hikes.
The S&P 500 was up 69 points, or 1.9%, to 3,646, as of noon. Eastern time. The Dow Jones Industrial Average rose 668 points, or 2.3%, and the Nasdaq Composite climbed 1.5%. The S&P 500 is down 26% this year and close to a two-year low.
“Not only is the Federal Reserve going to raise rates by 75 bps next month, but there is now a possibility that they will raise rates by another 75 bps in December,” predicted Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.
Minutes from the Fed’s last meeting, released Wednesday, underscored the central bank’s commitment to taming “unacceptably high” inflation.
“A hawkish reaction to the data could add more pressure to stocks,” Anderson Alves of ActivTrades said in a report.
September retail sales data to be released Friday could give a clearer picture of where prices are hottest and how Americans are reacting.
The Fed and other central banks in Europe and Asia have raised rates by unusually big margins to cool inflation that is at multidecade highs, but traders are afraid they might tip the global economy into recession.
“While inflation is still way too high, and core inflation is at a new generational high, the Fed is unlikely to increase the increment of its rate hikes,” Bill Adams, Chief Economist for Comerica Bank, said in a report.
Delta Air Lines shares jumped more than 4% premarket after it reported a $695 million third-quarter profit. Atlanta-based Delta said higher average fares this summer and a lucrative credit-card business more than offset rising fuel costs. The airline forecast that revenue during the final three months of the year will top pre-pandemic levels.
Dollar edges back
In energy markets, benchmark U.S. crude gained 13 cents to $87.40 per barrel in electronic trading on the New York Mercantile Exchange.
The dollar’s exchange rate has been rising against other currencies due to the Fed’s rate hikes and recession fears. The yen’s weakness has prompted expectations Japan’s central bank might intervene for a second time to prop up the exchange rate following an intervention in September.
