Wall Street surged higher for the third trading session in a row today as stocks gained momentum from a benign reading of consumer inflation.
The Dow Jones industrials soared more than 130 points, giving them a three-day advance of more than 300 points.
Investors were also encouraged by a decline of nearly US$2 1.57786 a barrel in oil prices, which alleviated another source of persistent concern, and Dow component Hewlett-Packard turned in a solid earnings report.
Despite the pronounced upturn, however, it was not clear that the market had completely shaken off the lingering worries about inflation and rising interest rates that dogged it over the past several weeks.
Investors focused on the consumer price index data released early today, particularly after a report on Tuesday showed an unexpected spike in prices at the wholesale level.
Todd Leone, head of listed trading SG Cowen & Co, said that while investor sentiment has been positive over the past few days, especially with falling oil prices and a favourable reading on consumer inflation, “people are cautious.”
“It’s been a very tough market,” Leone said. “It seems like we’ve done this before – it’s rallied and then sold off again. I’d like to see a sustained rally before we get too excited, say getting to 11,000. And I don’t see that happening until the Fed stops raising rates.”
The Dow rose 132.57, or 1.28%, to close at 10,464.45 after rising more than 191 points over the previous two days.
Broader stock indicators also advanced. The Standard & Poor’s 500 index closed up 11.76, or 1.00%, at 1,185.56 and the Nasdaq composite index rose 26.50 or 1.32%, to close at 2,030.65.
It was the highest level for the Dow and the S&P 500 since April 12, and the highest level for the Nasdaq since March 15. The last time all three indexes posted three consecutive days of gains was February 23-25.
The US Labour Department reported before the market opened that the consumer price index, the most closely watched barometer of inflation, rose 0.5% in April, led by higher energy and food prices.
But without the swings in those two volatile price categories, inflation in what is known as core prices was flat in April, a major improvement from March, when that measure shot up by 0.4%, its largest gain in more than two years.
Jeff Kleintop, chief investment strategist for PNC Financial Services Group in Philadelphia, said the CPI reading reassured investors that the Federal Reserve’s credit-tightening program was keeping inflation in check.
“The buyer’s strike might be over,” Kleintrop said, referring to the slump that plagued the market during April and early this month.
“Investors have been very pessimistic lately. There have been a lot of concerns about inflation, economic sluggishness and earnings growth decelerating. I think we’re starting to move past that.”
Prices for crude oil fell after government data showed US commercial oil stocks rose last week to their highest level in six years, topping analysts’ expectations. Futures for light sweet crude oil fell US$1.72 (€1.36) to settle at US$47.25 (€37.28) a barrel on the New York Mercantile Exchange.
“The market was oversold a couple weeks ago, and now we’re seeing relief on the two things keeping the market down: rates and oil,” said Russ Koesterich, senior portfolio manager at Barclays Global Investments in San Francisco.
“The nice thing about the inflation data is that it shows that higher prices aren’t getting passed on to the consumer,” Koesterich said.
Hewlett-Packard rose 1.00 or 4.6%, to 22.55 after the computer maker reported a slight increase in earnings after the market closed on Tuesday, edging past Wall Street’s estimates.
Delta Air Lines rose 29 cents or 9.6% to 3.30 after JP Morgan upgraded the stock, saying it doubted the troubled airline would file for bankruptcy this year, as the market seemed to be expecting.
Advancing issues outnumbered declining ones by a 3-to-1 ratio on the New York Stock Exchange, where volume totalled 1.78 bn, against 1.49 bn on Tuesday.
The Russell 2000 index of smaller companies was up 12.61, or 2.12%, to 607.88.