U.S. stocks rallied on Wednesday, with the tech-heavy Nasdaq Composite index closing more than a fifth above its lowest level hit earlier this year, after fresh data showed inflation was stabilizing in the world’s biggest economy.
The consumer prices in the US rose 8.5 percent on an annual basis in July, slower growth than in June and below economists’ forecasts of 8.7 percent. Data released on Wednesday also showed that there was no month-on-month increase in inflation in July, compared with a monthly increase of 1.3 percent in June.
The figures added further fuel to a two-month rally in financial markets, as traders bet the Federal Reserve could be led to rein in its aggressive rate hikes to curb rising prices.
The Nasdaq Composite, which includes technology majors such as Apple and Microsoft, rose 2.9 percent on Wednesday, having gained 20.7 percent from lows hit in June. Fast-growing companies in the index have been hit hard this year as investors cut their forecasts for global growth and Treasury yields rose.
The blue-chip S&P 500 advanced 2.1 percent, closing above 4,200 for the first time since early May. The benchmark is up 14.8 percent from its 2022 low, although overall U.S. stocks are still worth about $8.6 trillion less than when the year began.
Measures of volatility, which had been elevated after Russia’s invasion of Ukraine and increased chances of a US recession began to unnerve investors, also fell. The Vix index of expected stock market volatility fell below its long-term average of 20 for the first time since April.
Asian shares largely followed Wall Street’s gains on Thursday, with Hong Kong’s benchmark Hang Seng index up about 1 percent and China’s CSI 300 index up 0.5 percent. Japan’s Topix fell 0.2 percent.
“Inflation had been expected to peak over the summer for some time, so it was reassuring for the markets that there were clear signs that this was going to happen,” said Oliver Blackbourn, portfolio manager at Janus Henderson Investors.
Prices of two-year US Treasury bonds, which are particularly sensitive to changes in the Fed’s interest rate policy, also rose after the inflation report.
The advance lowered the yield on the bond by 0.05 percentage points to 3.22 percent. The yield on the benchmark 10-year Treasury, which moves in line with inflation and growth expectations, rose 0.01 percentage point to 2.79 percent.
The US dollar, a haven for investors in times of uncertainty, also fell in reaction to the data, falling 1.1 percent against a basket of six currencies.
Still, inflation data shows prices remain well above the U.S. central bank’s 2 percent target.
“While peak inflation is welcome news, it’s likely not enough to allow the Fed to ease its tightening or calm recession fears,” said Mike Bell, global market strategist at JPMorgan Asset Management.
Core inflation, a measure of price growth that strips out volatile categories including energy and food, was also below expectations, holding at the 5.9 percent level reached in June and well below March’s peak of 6.5 percent.
“I think this could be a new bull market as opposed to a growing bear market. The Fed will eventually turn around, the rate of hikes will have to slow down,” said Patrick Spencer, vice president of equities at Baird.
However, others warned that inflation remained high. “It’s nice to see the report coming in on a cooler note, but we’ll keep the champagne bottles closed for now,” said Brian Nick, chief investment officer at Nuveen.
In Europe, the Stoxx 600 index rose 0.9 percent, and Germany’s Dax index gained 1.2 percent after a loss in the previous session.