The stock market is having one of its best sessions in ages, and saying, “stocks are up today” feels like an understatement. That’s as the S&P 500 is up 4% and the Nasdaq is up almost 6% on Thursday.
If the S&P 500 logs a 4% gain today, it will be the largest daily gain since April 6, 2020 when it rallied more than 7%. So what’s got stocks up today and why is the rally so big?
This morning’s monthly inflation report hit the tape at 8:30 a.m. ET. That kickstarted a massive rally in U.S. stock futures, which then set up a higher open on Thursday. Investors weren’t taking their gains at the open though, as the markets have continued to push higher into the afternoon.
The inflation report proved pivotal and it was a binary event for the market. In terms of significance, think of it like an earnings report for the S&P 500. Each major category of inflation was lower than economists’ expectations. Not only is that a win for investors, but it also helps to quiet the hawkish tone from the Federal Reserve.
Coming into Thursday’s session, the Fed funds futures market was pricing in roughly a 50-50 outcome as to whether the Fed would raise interest rates by 50 basis points or 75 basis points in the December meeting.
Stocks Are Up Today, but Will That Continue?
With several Fed speakers on the schedule for today, investors wanted to hear their thoughts. Several talked about the need for slower rate hikes and eventually halting rate increases. While that still means a restrictive policy, the end of the rate-hiking stretch would be a huge positive for stocks — particularly after four straight 75 basis point increases.
The rate hikes have been especially impactful on growth and tech stocks. Even FAANG has felt the pinch over the last few weeks as these stocks have been hitting new lows.
Here’s the deal, though. While it may not pan out this way, think about the number of funds and investment managers who are underwater this year. You know, the ones that have underperformed the S&P 500 and lost money in 2022. There are a ton of them. What better way to make up for that than to trigger a year-end rally?
If the Fed becomes less hawkish, that’s one step closer to a Fed pivot. I haven’t really been in the pivot camp so far this year because the data has not given us a reason to believe the Fed will lighten up on its stance — until now.
But even if the Fed doesn’t pivot, investors could pivot to the long side in anticipation of such a move. We’ll see how it shakes out, but today’s inflation report was quite bullish for investors and one could imagine how it may lead to a larger move off the lows.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.