Stocks roar back after plunging at the opening bell

Stocks staged a dramatic turnaround Thursday, bouncing back from significant losses at the start of trading and finishing sharply higher. Investors were disheartened at first by the Consumer Price Index report, which showed continued inflation pressures. That added to fears that multiple big rate hikes from the Federal Reserve could be ahead. 

But stocks rallied as the day progressed. Investors focused more on strong earnings from the likes of Delta (DAL), Dow component Walgreens (WBA) and Wall Street giant BlackRock (BLK). It was a broad-based rally. All 30 Dow stocks finished in green and nearly all of the S&P 500 members closed higher, led by strong gains from materials, energy and financial stocks. 

The Dow surged 828 points, or 2.8%. That was the Dow's biggest percentage gain of 2022.

The S&P 500 shot up 2.6%.

The Nasdaq rose 2.2%.

We're running out of superlatives to describe today's action on Wall Street. Amazing! Stupendous! Irrational? With a little less than an hour to go before the closing bell, the Dow was up more than 950 points, or 3.3%.

If those gains hold, the Dow will wind up with its biggest percentage and points gains of 2022, topping a 2.8% jump from early May. It needs to go up more than 932 points for it to be the largest point increase.

The Nasdaq and S&P 500 were surging too, rising 2.7% and 3% respectively.

Inflation, shminflation. Stocks were soaring in midday trading Thursday, despite the fact that the consumer price index rose more than expected. All 30 Dow stocks were higher, with the energy and financial sectors posting the biggest gains.

The Dow was up more than 800 points, or 2.8%.

The S&P 500 rose 2.5%.

The Nasdaq Composite gained 2%.

It was a dramatic turnaround for stocks, which plunged after the opening bell after the CPI report came out. The Dow was down 550 points early on in the trading session. But the severe sell-off might have been overdone.

Some traders were suggesting that the market may (finally) have hit bottom after the S&P 500 briefly dipped below the key 3,500 level before rebounding.

Shelter costs make up a big chunk of the consumer price index. So with rents rising dramatically over the past year (along with housing prices), it's no wonder that CPI numbers continue to come in higher than expected. But there is some confusion about whether rent increases are finally peaking or not.

The government said in the CPI report that both rent and owners' equivalent rent (which measures how much a homeowner estimates they could get if they rented their property) rose 0.8% from August. The increase in owner's equivalent rent was the biggest since June 1990.

But a report from real estate brokerage firm Redfin (RDFN), also released Thursday, showed that the median monthly rent nationwide fell 2.5% in September.

“The rental market is coming back down to earth because high rents and economic uncertainty have put an end to the pandemic moving frenzy of 2020 and 2021, when remote work fueled an enormous surge in housing demand,” said Redfin deputy chief economist Taylor Marr.

“We expect rent growth to slow further into 2023 as Americans continue to hunker down and more new rentals hit the market,” Marr added.

If that's true, inflation pressures could finally start to subside more dramatically. Investors may be hoping that's the case, which is one reason to justify the big stock market surge Thursday.

"There is a disconnect. With Redfin coming out and saying there is a decline in rents, maybe the Fed has something to glob on to that will allow it to slow the rate hikes," said Lamar Villere, portfolio manager with Villere & Co.

Stop this market! I want to get off! Stocks roared back in late morning trading after plunging at the opening bell. The Dow, S&P 500 and Nasdaq were all soaring in late morning trading.

Possible catalysts? Even though the hotter-than-hoped-for inflation report is sparking fears of more big rate hikes from the Federal Reserve, some optimists are starting to see light at the end of the Fed tightening tunnel.

Economists at Barclays said in a report Thursday that they now expect another three-quarters of a percentage point rate increase in November and December and then a half-point hike at the Fed's February 2023 meeting.

Beyond that? A pause. And, eventually, rate cuts. Barclays predicts that the central bank will lower rates by a quarter of a point at each of its last three meetings in 2023.

The Dow was up more than 600 points, or 2.1%, in late morning trading.

The S&P 500 rose 2%.

The Nasdaq Composite gained 1.9%.

So investors might be playing the long game and betting on Fed easing within the next year. But is that a pipe dream?

Andrew Patterson, senior international economist at Vanguard, told me he thinks rate cuts are unlikely until 2024. Patterson said the Fed — and investors — need to still be concerned about how so-called core inflation (excluding food and energy) has yet to cool dramatically.

"We're not seeing the trends we would have hoped for in core CPI," he said.

Markets recovered mid-morning Thursday from earlier lows following red-hot inflation data that sent the Dow plunging more than 500 points.

The Dow was down 185 points, or 0.6%.

The S&P 500 was down 1.1%.

The Nasdaq Composite was 1.9% lower.

Prices at the grocery store continued to soar last month, adding even more pressure to shoppers' wallets.

The food at home index, a proxy for grocery store prices, increased 0.7% in September from the month prior and 13% over the last year, according to new government data released Thursday.

Just about everything got more expensive in September.

Fruits and vegetables rose 1.6% for the month, while cereals and bakery products rose 0.9%. Other groceries increased 0.5% in September, following a 1.1% increase in August. 

Meats, poultry, fish and eggs rose 0.4% over the month and beverages increased 0.6%.

Prices on many of these items are up double-digits annually.

Stocks deflated Thursday following the inflation report, but there were a handful of blue chip companies holding up well. Three in particular were solidly in green thanks to strong earnings.

Drugstore giant Walgreens (WBA) was one of the few Dow winners, gaining 3% after reporting a better-than-expected profit and healthy guidance for 2023.

And Domino's (DPZ) delivered for investors. The pizza king's sales topped forecasts, even though the strong dollar ate into revenue a bit. Domino's shares rose 9%, making it the top performer in the S&P 500.

Delta (DAL) shares also took flight, thanks to solid sales and a robust outlook.

It just goes to show that even in a bear market and with recession fears swirling due to concerns about uber-aggressive rate hikes from the Fed to try and stomp out inflation, investors still need to focus on fundamentals. There are always buying opportunities somewhere.

After taking a breather last week, mortgage rates rose again -- moving even closer to 7%.

The 30-year fixed-rate mortgage averaged 6.92% in the week ending October 13, up from 6.66% the week before, according to Freddie Mac. It is the highest average rate since April 2002. A year ago, the 30-year fixed rate stood at 3.05%.

Mortgage rates have more than doubled in the past year as the Federal Reserve pushed ahead with its unprecedented campaign of hiking interest rates in order to tame soaring inflation. The combination of the central bank's rate hikes, investor's concerns about a recession and mixed economic news has made mortgage rates volatile over the past several months.

"We continue to see a tale of two economies in the data," said Sam Khater, Freddie Mac's chief economist. "Strong job and wage growth are keeping consumers' balance sheets positive, while lingering inflation, recession fears and housing affordability are driving housing demand down precipitously."

He said the next several months will undoubtedly be important for the economy and the housing market. Already, home sales are dropping and prices are cooling as well.

The average mortgage rate is based on a survey of conventional home purchase loans for borrowers who put 20% down and have excellent credit, according to Freddie Mac. But many buyers who put down less money up front or have less than perfect credit will pay more.