Wall Street Makes Sharp U-Turn to Gain 600pts despite Higher-Than-Expected US Inflation Data

Wall Street made a sharp turnaround from steep losses in a volatile session on Thursday as investors digested inflation data for September that came out slightly higher than expected.  

After plunging nearly 600 points in an early session, Dow Jones bounced back to trade at a gain of 570 points or 1.95% on Thursday. Meanwhile, S&P 500 rose 1.76% and Nasdaq increased 1.46%.

Some economists believed that the higher-than-expected inflation data might indicate that a rise in prices should peak soon. Moreover, the data also showed that gasoline prices decreased by 4.9%, though a rise in food prices and owners’ equivalent rent offset those declines.    

Inflation data for September came in at 8.2% YoY, a slight decrease compared from a reading of 8.3% in August, but still higher than 8.1% expected by economists. Meanwhile, core CPI also increased to 6.6% YoY from 6.3% and a consensus forecast of 6.5%.

With strong job reports in September and the unemployment rate that fell to 3.5%, the market is now fully priced in the probability of a 75 basis point increase in policy rate at the Fed’s meeting in November, which would be its fourth straight hikes at this pace. The probability for the fifth hike at the same rate also increased to 62% after the release of inflation data.


Meanwhile, Reuters reported that the European Central Bank staff expects lower terminal rate than markets now estimate to tame inflation. Under the new model, called Target-Consistent Terminal Rate, ECB may need to raise its policy rate to only 2.25% or even less if at the same time it shrinks its balance sheet. The new terminal rate is well below the market expectations for interest rate to peak over 3%. 

The British pound on Thursday also traded 2% higher at $1.1335 during the late afternoon session in London after the report that the Liz Truss’ government is in talks to scrap parts of her unfunded package of tax cuts.