Stock market rally, new breakouts disappear in the afternoon as CPI enthusiasm dies down

The early stock market gains faded by midday, though indices continued to move higher after inflation eased further in November. About a dozen stocks topped the buy points, but some of those pimples also faded.




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The Nasdaq was up more than 3% to begin with, but trimmed its gains to 0.2% at 12:50 AM ET. The S&P 500 cut its gains to 0.2% and the Dow Jones Industrial Average returned to a lower 0.2%. The Russell 2000 was a relatively better 0.4% increase.

Volume on the NYSE and Nasdaq increased compared to the same time on Monday.

The Innovator IBD 50 ETF (FFTY) cut its gains to 0.1% by midday.

Inspire medical systems (INSP) led the index with a 6% jump after Goldman Sachs upgraded the sleep apnea treatment company to buy from neutral. The stock reached the 20% profit target from the buy point of 212.22.

Toro (TTC) is trying to rise above the buy point of 113.47 from a tight three-week pattern. Lattice semiconductor (LSCC) broke out of an entry hold at 73.63 but volume was weak. Monday’s IBD 50 stock to watch Analog devices (ADI) was above a buy point of 173.40 cups with handle, but returned much of its early gains.

Outside the IBD 50, Anheuser Busch InBev (BUD) and CBIZ (CBIZ) held above buy points, according to screens in MarketSmith.

But CDW (CDW), Vici properties (VICI), Amdocs (DOX) and Calix (CALX) were back below the buy points during afternoon trading.

Inflation Report Calms Stock Market

November’s consumer price index (CPI) rose just 0.1% from the previous month and 7.1% year-on-year. That’s down from a 0.4% month-over-month increase and a 7.7% year-over-year increase in October. The last 12-month CPI was the lowest since December 2021.

Core CPI, which excludes food and energy, also showed moderation from October’s numbers. It was up 0.2% from the previous month and 6% year-on-year, also better than expected.

At noon, the yield on the 10-year treasury fell 13 basis points to 3.48%.

Chris Zaccarelli, Chief Investment Officer of Independent Advisor Alliance, believes the CPI should give investors more confidence for the remainder of the year.

“Santa is coming anyway,” he said in a note. “In addition to more room for the Fed to operate in (due to the lower inflation valuation), investors are so bearishly positioned that there will be a rush to cover shorts and the bulls will take advantage.”

Fed can find room to slow down tightening

BMO Capital Markets Senior Economist Sal Guatieri said November’s subdued CPI “paves the way for the Fed to scale back the pace of rate hikes (to 50 basis points) tomorrow.”

With further moderation, the Fed may only need to raise rates slightly in 2023 to complete its tightening cycle. “With most of the policy effects set to materialize next year, we still see a shallow downturn, but the better inflation news of recent times significantly reduces the likelihood of a more serious outcome.”

Today’s rally puts the stock market’s uptrend on a better footing, but not necessarily on a clear upward path.

The Nasdaq held off a pullback to the 50-day line and previously reached its highest level since Sept. 21. However, there was resistance around that level. The Dow’s 50-day moving average is approaching the 200-day mark.

The S&P 500 remained just above its 200-day moving average after falling earnings.

Stock market action on moving averages

Some chart readers expressed concern that the S&P 500 may run into resistance as it hits a trendline that crosses the highs and back to the peak in January. The index is trying to break above that critical line today.

Keep in mind that past inflation-related rallies have faded. The Nasdaq’s 4.4% vault on Fed Chairman Jerome Powell’s comments on Nov. 30 evaporated just days later. And just a week ago, the S&P failed in its most recent attempt to cross the 200-day mark.

On Wednesday, the Fed will announce its next monetary policy steps. With that comes the possibility of surprise for investors.

Dow component Boeing (BA) rose 1% to its highest since April. United Airlines (UAL) agreed to buy 100 787 Dreamliner jets, a deal worth $30 billion before discounts. United also took options on 100 additional 787s. United shares fell 6% lower, slipping from a buy point of 45.67.

Moderna (MRNA) rose more than 23% after partnering with Dow Jones component Merck (MRK) produced positive trials of a vaccine for the recurrence of melanoma, in combination with a Merck cancer drug.

Moderna broke from a cup-with-handle base and has now extended from the 188.75 buy point. Merck rose 0.6%.

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