Stock futures surge as CPI shows inflation eased in October

U.S. stock futures zoomed forward in the early trade Thursday as Wall Street cheered lighter-than-expected inflation data and monitored midterm election tallies.

The Consumer Price Index (CPI) for October reflected a 7.7% increase over last year and 0.4% increase over the prior month, better than Wall Street expected. Economists surveyed by Bloomberg called for a 7.9% annual rise and 0.5% monthly gain.

Futures tied to the S&P 500 (^GSPC) rose almost 3%, while futures on the Dow Jones Industrial Average (^DJI) climbed by over 800 points, or 2.7%. Contracts on the technology-heavy Nasdaq Composite (^IXIC) advanced a whopping 3.6%. Meanwhile, Treasury yields tumbled following the report, with the benchmark 10-year Treasury falling below the 4% level.

“The first downside surprise in inflation in several months will inevitably be received by an equity market ovation,” Principal Asset Management Chief Global Strategist Seema Shah said in a note, adding however that Federal Reserve officials remain on pace to proceed with rate increases and a pause is still elusive.

“Let the market enjoy today, it still has another 100 basis points or so of tightening to commiserate,” she said.

Thursday’s moves come after each of the major averages slid at least 2% in the previous session over midterm election uncertainty.

Republicans appeared poised to take control of the House but did not sweep polls at the extent anticipated, undermining optimism over the market-friendly gridlock investors anticipated.

Even as Wall Street awaits political clarity, with vote counting still underway, GLOBALT Investments vice president and senior portfolio manager Thomas Martin argued that markets are laser focused now on only one thing: the effect of central bank tightening on inflation.

“So far, the effects seem to be not all that appreciably different from zero,” he said in a note late Wednesday. “Yes, there have been data points hinting at the easing of some prices, but they haven’t been able to muster sustainable momentum.”

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