U.S. stock indexes rallied on Tuesday as cooler-than-expected inflation data boosted expectations that the Federal Reserve was done raising interest rates and could start cutting them next year.
The benchmark S&P 500 (.SPX) briefly crossed the 4,500 mark for the first time in two months and the tech-heavy Nasdaq (.IXIC) was trading at a fresh two-month high after data showed that growth in U.S. consumer prices eased in October, in part due to lower gasoline prices.
In the 12 months through October, the CPI climbed 3.2% after rising 3.7% in September, while economists polled by Reuters had forecast a 3.3% gain on a year-on-year basis.
Core prices, which exclude the volatile food and energy components, rose 4.0% compared with economists' estimate of a 4.1% increase.
"We're happy to see both headline and core CPI come in lower than expected. It's telling us that the Fed is done, there's nothing left for it to do here," said Thomas Hayes, chairman at hedge fund Great Hill Capital at New York.
"This is what the Fed was looking for, slowing inflation, slowing labor market and the economy's holding up at the same time."
Following the data, traders erased bets the Fed will raise borrowing costs any further and piled into bets on rate cuts starting by May. They are currently pricing in a 100% chance the Fed will hold rates next month, as per CME Group's Fedwatch tool.
U.S. Treasury yields dropped, with the two-year yield , which best reflects short-term interest rate expectations, sliding to two-week lows.
That in turn lifted megacap-growth stocks such as Nvidia (NVDA.O), Alphabet (GOOGL.O), Amazon.com (AMZN.O) and Tesla (TSLA.O) up between 1.6% and 4.7%.
The small-cap Russell 2000 index (.RUT) jumped 4.7% to hit an over six-week high. Rate-sensitive sectors such as real estate (.SPLRCR) and utilities (.SPLRCU) that have been hammered this year, rose 5.5% and 3.4%, respectively.
Wall Street's main indexes have seen a strong rebound in November on expectations that U.S. interest rates were near their peak, even as Fed Chair Jerome Powell last week left the door open to further tightening.
Focus is also on negotiations by U.S. lawmakers over a funding bill as they face an end-of-week deadline to fund the federal government.
U.S. House of Representatives Speaker Mike Johnson said on Tuesday he thinks the House will pass a short-term spending bill to avert a partial government shutdown beginning on Saturday.
At 12:00 p.m. ET, the Dow Jones Industrial Average (.DJI) was up 494.67 points, or 1.44%, at 34,832.54, the S&P 500 (.SPX) was up 80.73 points, or 1.83%, at 4,492.28, and the Nasdaq Composite (.IXIC) was up 282.21 points, or 2.05%, at 14,049.95.
Snap Inc shares (SNAP.N) jumped 7.7% following news that Amazon.com (AMZN.O) will allow Snapchat users in the United States to buy some products listed on the ecommerce company directly from the social media app.
Home Depot (HD.N) gained 6.6% after the U.S. home improvement chain beat quarterly profit estimates.
Fisker (FSR.N) slid 22.5% after the electric-vehicle startup slashed its 2023 production forecast.
Advancing issues outnumbered decliners by a 11.13-to-1 ratio on the NYSE and by a 3.93-to-1 ratio on the Nasdaq.
The S&P index recorded 41 new 52-week highs and no new lows, while the Nasdaq recorded 93 new highs and 101 new lows.
