Wall Street closes higher after inflation cooled in November

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NEW YORK Wall Street closed higher Tuesday after a report revealed that inflation had cooled more than expected. This confirms expectations that the Federal Reserve will reduce the size of its interest rates hikes. The encouraging inflation data raised hopes that the Fed would ease the economic pressure ahead of Wednesday’s interest rate policy update from the Fed. Initial stock surges drove the Dow Jones Industrial Average higher than 700 points, but they then dwindled as analysts warned investors not to let their hopes for a more easy Fed fool them.

The S&P 500 ended 0.7% lower. A 2.8% surge in the early morning was almost over by lunchtime. It had already risen 1.4% a few days earlier. Much of that gain was due to the anticipation of the inflation data.

The Dow Jones Industrial Average lost 0.3% before closing 0.3% higher. Meanwhile, the Nasdaq composite gained 1% after losing most of its 3.8% gain.

The source of all the action was data that showed that U.S. inflation fell to 7.1% last month, from 7.7% in October and more then 9% in summer. Although inflation is still high and shoppers continue to pay higher prices than they did a year ago. Tuesday’s report gives hope that the worst of the inflation may have passed during the summer.

Markets were encouraged by the slowdown, which raised expectations that the Federal Reserve would reduce its rate of increase to 0. 50 percentage points when it announces its next hike to short-term rates on Wednesday.

” The market is holding onto what the Fed does,” said Michael Antonelli of Baird. He added that Wall Street will be closely watching to see if Fed officials acknowledge the latest evidence for declining inflation.

“Will they include that in their language?” he asked. “And if they say, ‘yes, we see it, but that doesn’t change our mind at all,’ then they’ve told us that they still think they need to hike or that they need to stay at higher rates for longer.”

Such increases slow the economy by design, in hopes of cooling conditions enough to get inflation under control. They also run the risk of causing a recession by raising rates too high. This can cause stock prices to drop and other investments to fall. A smaller increase in interest rates would cause less pain for the economy and markets.

A hike of 0. 50 percentage points would usually be a big deal because it’s double the typical move. However, with inflation at its lowest level in decades, it would be a step back from the four consecutive mega-hikes that were 0. 75 percentage points the Fed has approved since the summer.

Expectations for an easier Fed meant some of Wall Street’s wildest action Tuesday was in the bond market, where yields fell sharply immediately after the inflation report’s release.

The yield on the 10-year Treasury, which helps set rates for mortgages and other important loans, fell to 3. 51% from 3. 62% late Monday. 75% late Monday. 22% from 4.39%. Other central banks around the globe, including the European Central Bank are likely to raise their rates by half a point this week.

Technology stocks helped push the S&P 500 higher. The benchmark index added 29. 09 points to close at 4,019.65. The Dow rose 103. 60 points to 34,1087.64. The Nasdaq gained 113. 08 points to finish at 11,256.81.

Small stock companies also gained ground. The Russell 2000 index rose 13. 75 points, or 0.8%, to 1,832.36. Despite the encouraging data, analysts warned that the Federal Reserve’s fight to combat inflation and its hikes in interest rates still has a long way to go. Even though the Fed moves at smaller increments each week, it could still eventually take rates higher than what the markets expect.

” This downshift should not be confused with a pivot,” Jake Jolly, senior investment strategist at BNY Mellon Investment Management, said. “It’s going to be a bumpy, long slog and probably going to take most of next year.”

Some investors continue to bet the Fed will cut interest rates in the latter part of 2023. While rate cuts can be likened to steroids for stocks and other investments

, some investors still believe that the Fed will cut interest rates in the latter part of 2023. However, the Fed insists it will keep rates at a high level for a while to fight inflation.

Even though inflation is on the decline, the global economy faces serious threats from rate hikes already passed. Low interest rates are a weakness in the housing industry and other businesses that depend on them, and there are growing concerns about corporate profits.

However, this caution was not enough to erase all the relief that washed down Wall Street. Economists called the inflation data “cool”.

This is a measure of stock investors’ fear. It shows how much they pay for protection against future price swings.

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AP Business Writer Elaine Kurtenbach contributed from Bangkok and AP Business Writer Matt Ott contributed from Washington. Veiga reported from Los Angeles.

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