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Dow jumps 800 points – the best day for the stock market in six weeks

Posted on by Taylor Reeves
Dow jumps 800 points – the best day for the stock market in six weeks

Topline

The stock market had one of its best days of the year on Friday, shaking off a historic losing streak as investors reacted positively to the latest inflation update.

Important facts

The blue-chip index Dow Jones Industrial Average (plus 2% or 830 points) and the leading index S&P 500 (plus 1.8%) were both on track until midday and recorded their strongest percentage gains since November 6th, the day after the election.

If gains continue, Friday would be the Dow’s fourth-best day of 2024 and the S&P’s 10th-best day of the year.

The big rally, punctuated by the tech-heavy Nasdaq’s 1.9% rise, came after reports last month that arguably the most important inflation measure was better than expected, a welcome sign for a market hungry for strong inflation data , as these would provide further support for interest rate cuts, which typically improve stock valuations.

A CNBC appearance by Austan Goolsbee, president of the Federal Reserve Bank of Chicago, also helped allay fears surrounding muted interest rate cut expectations behind Wednesday’s sharp selloff. at 4.5% level.

Each of the S&P’s 13 sectors rose on Friday, with interest rate-sensitive real estate the biggest gainer at 2.8%.

Drugmaker Eli Lilly, Warren Buffett’s favorite energy company Occidental Petroleum and investment bank Goldman Sachs were among notable stocks that gained at least 3%.

Surprising fact

The CBOE Market Volatility Index (VIX), known as Wall Street’s fear gauge, plunged 25% on Friday, marking the gauge’s third-largest one-day loss in the past decade, signaling renewed appetite for risk among investors.

Crucial quote

“Stubborn inflation seemed a little less stuck this morning,” Chris Larkin, managing director of trading and investing at Morgan Stanley’s E*TRADE, wrote in emailed comments.

Important background

The Dow Jones ended its 11-consecutive losing streak on Thursday, its worst losing streak since 1974. Wednesday was the most painful of those days in the red as the Dow fell more than 1,100 points, its worst loss since September 2022 as Wall Street shuddered at the new Average Fed forecast of two rate cuts in 2025, up from previous forecast of four rate cuts. That would mean interest rates would remain near historically high levels of 4%, which would do double damage to the stock market by making it more expensive for companies to borrow, cutting into profit margins and causing cash to be plowed into government bonds. The brighter inflation readings “may temper some of the market’s disappointment with the Fed’s interest rate announcement on Wednesday,” Larkin said.

Big number

4%. The Dow has fallen by this amount since the record closing high on December 4th.

Further reading

ForbesThe Fed’s preferred inflation gauge is better than expected as volatility in rate cuts worries marketsFrom Derek Saul

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