Following More Signs of Slowing Inflation, Stocks Begin To Rise

Tuesday’s stock market is up as another inflation reading came in below economists’ forecasts.

By 175 points, or 0.5%, the Dow Jones Industrial Average has increased. The Nasdaq Composite has increased by 2.3% while the S&P 500 has increased by 1.3%.

“The PPI read certainly adds more fuel to the fire for those who feel we may finally be on a downward inflation trend,” wrote Mike Loewengart, head of model portfolio construction at the Morgan Stanley Global Investment Office. “The market embraced last week’s consumer downtick and today’s initial reaction seems to be more of the same.”

The producer-price index increased by 8% year over year, which was less than the consensus forecast and the revised 8.4% advance from September.

Companies should raise selling prices at a slower rate if costs rise less than anticipated. Therefore, the PPI result supports the idea that inflation, as measured by the consumer price index, is declining.

This is fueling stock gains on Tuesday following falls on Monday.

As market investors cashed in gains made last week, the Nasdaq fell more than 1% during Monday’s losses.

Markets are still optimistic that the rate of consumer inflation has peaked, as seen by the rise that started last week. That suggests that the Federal Reserve may soon slow down the rate of interest rate increases, which are intended to reduce economic demand and so curb inflation.

Bond market wagers have already been placed that the Fed will soon decrease the rate of rate increases.

The two-year Treasury yield, a gauge of what people are anticipating from the federal funds rate, has dropped to 4.357%, which is lower than it was right before the PPI data. Furthermore, it is lower than the multi-year high of slightly over 4.812% reached earlier this month. The 10-year yield has decreased to 3.820%, which is below both its pre-PPI level and a multi-year high of slightly more than 4.2% reached in late October.

“Overall, as inflation cools, it is taking pressure off the Fed to raise key interest rates beyond its December FOMC meeting,” wrote Louis Navellier, founder of Navellier & Associates.

The dollar is falling as a result of the rate decline. The U.S. Dollar Index (DXY), which compares the value of the dollar to a basket of currencies, has fallen from a multi-decade high of just over 114 to around 107. Lower interest rates on U.S. bonds deter foreign investors from accumulating dollars.

The stock market is interested in learning more about that development. U.S. multinational corporations that generate revenue from sales abroad increase their sales when they convert that income back into local currency.

Original article posted here.