Indications that the United States wants to resume trade talks with China and the pre-opening release of a benign consumer price inflation report combined to unleash the bulls yesterday morning. On point, the Dow Jones Industrial Average jumped by more than 175 points in the first half hour of trading after the government said that the Consumer Price Index--a very closely watched inflation metric--had risen by 0.2% in August. That was a tad below the forecast gain of 0.3%. Many investors have been growing fearful of the potential for higher inflation following as strong increase in average hourly wages in August.    

Couple that with the Wednesday report of a slight dip in producer prices and a lukewarm assessment by the Federal Reserve on the economy, in which the bank opined that the economy was continuing to expand at a moderate pace amid tight labor markets. However, the Fed also maintained that uncertainty over global trade had prompted businesses to scale back plans on spending. The Beige Book went on to state that “businesses generally remained optimistic about the near-term outlook, though most Districts noted concern and uncertainty about trade tensions.”

That cautiously optimistic analysis suggests the economy is strong enough for the Fed to raise interest rates at its late-September FOMC meeting, and perhaps again in December should the unsettled trade situation not throw the long business expansion off stride. Meanwhile, the market stayed nicely higher, with particular strength observed by the tech-heavy NASDAQ, with Apple (AAPL – Free Apple Stock Report) shares again in the lead, gaining more than $4.00 early in the session. International Business Machines (IBM – Free IBM Stock Report), a recent laggard, also saw a nice bounce, as all of the key indexes participated in the early market run to high ground.

However, as we moved more deeply into the morning, the strong run dissipated somewhat, and the Dow, once up by 190 points, lost about half of that gain, interest rates started to tick up slightly. But that would prove a brief hiatus, as the market would rally again, pushing to a gain of past 150 Dow points. Things would then change little though the early and mid-afternoon, with stocks being helped by optimism on trade, the benign inflation reading, and a better-than-five-point advance in Apple shares. The latter gain helped to boost both the Dow and the NASDAQ.

As we reached the final hour, the Dow had retained a 135-point advance, while a 60-point uptick was in place on the tech-driven NASDAQ. What was not rising on the day was oil, while tumbled by 2.5% after attaining a four-month high earlier in the week as investors were growing concerned about the risk that emerging market crises and trade disputes could hamper oil demand even as supply tightens. Meanwhile, the market firmed up further in the last few minutes of trading, with the Dow finally closing up 147 points, the S&P 500 Index adding 15 points, and the NASDAQ climbing 59 points.      

Looking out at a new day, which will see the release, after the market opens, of reports on industrial production, factory usage, and consumer sentiment, we see that stocks traded generally higher in the overnight period in Asia, while in Europe, the bourses are moving upward, as well, at this hour. Also, oil prices, which, as noted, fell back yesterday, are now nudging higher in early dealings, and yields on the 10-year Treasury note, which ended at 2.96% yesterday are now trading at 2.99% this morning. Finally, U.S. equity futures are signaling a firmer opening when trading resumes shortly. 
 
- Harvey S. Katz, CFA
 
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.