Wall Street Today | Market Rallies after CPI Shows October Inflation Slowdown

U.S. stocks opened sharply Tuesday after the October CPI numbers showed inflation had slowed to the slowest growth since Sept 2021. The numbers reinforced expectations the Federal Reserve is finished raising interest rates, and investors continued to pencil in rate cuts in 2024. The CME Fed rate change probability tool briefly tracked a 0% chance of a rate hike in this year's final FOMC meeting.

At the end of the day, Bloomberg reported that the House would likely pass an interim government funding bill to keep the lights on until Jan. 19.

The October consumer-price index was unchanged from September. Cheaper gasoline took the edge off inflation, leading investors to believe the Federal Reserve's effort to get prices under control is working. Economists polled by The Wall Street Journal had forecast a 0.1% increase in the CPI. The core reading, which excludes volatile food and energy prices, rose 0.2%, bringing its year-over-year rate down about ten basis points to 4%

The CPI reading was "the latest item in a flood of good news hitting the market in November," David Russell, global head of market strategy at TradeStation, told MarketWatch. "A soft landing and permanent Fed pause look increasingly likely, which would lay the groundwork for a strong year-end. Santa could be coming to town."

The odds of a Nov. 18 US government shutdown diminished Tuesday as House Speaker Mike Johnson gained broad Democratic support for his interim funding plan.

Moments before a scheduled House vote, four top House Democratic leaders endorsed Johnson’s proposal, making its passage all but assured. Senate Majority leader Chuck Schumer earlier in the day said he is “heartened, cautiously so,” by the short-term funding proposal.

The Johnson bill would fund some parts of the government through Jan. 19 and others through Feb. 2, setting up the possibility of yet another shutdown deadline on Groundhog Day.

The October consumer inflation data show that progress continues on bringing inflation down, but price pressures remain well above the Fed's preferred level, Chicago Fed President Austan Goolsbee said on Tuesday.

"We still have a long way to go before we reach our 2% PCE inflation target," Goolsbee said in a moderated discussion at the Detroit Economic Club. The personal consumption expenditures price index, or PCE, is the Fed's preferred measure of inflation.  "There could be 'the softest of all soft landings,' Goolsbee said. "There are always some bumps in the road when inflation comes down."

Two- and 10-year Treasury yields headed for their biggest one-day declines in more than six months on Tuesday after October's U.S. consumer price inflation report came in below expectations.

The yield on the 2-year Treasury dropped 18.6 basis points to 4.851% from 5.037% on Monday. At one point in New York's session, it looked headed for its biggest one-day drop since May 4, according to preliminary figures from Dow Jones Market Data.

U.S. technology stocks hit an all-time high Tuesday, surpassing an earlier record from July.

West Texas Intermediate settled unchanged near $78 a barrel, erasing an equities-led morning rally. The US benchmark has struggled for direction — crossing above its 200-day moving average just one week after breaching it on the way down.

While oil demand is healthy, according to the International Energy Agency. Increased output from the US and Brazil are offsetting strong consumption from China, the agency said in a report Tuesday. At the same time, OPEC’s de facto leader, Saudi Arabia, is keeping its output at the lowest level in years despite the cartel’s bullish forecasts. Russia’s waterborne crude flows have eased.