Optimism About Slowing Inflation Contributes To Continued Strength On Wall Street

Extending the recovery rally seen last week, stocks showed a strong move to the upside during trading on Monday. With the continued advance, the major averages closed higher for the fourth consecutive session.

The major averages finished the day firmly in positive territory. The Dow climbed 229.63 points or 0.7 percent to 32,381.34, the Nasdaq surged 154.10 points or 1.3 percent to 12,266.41 and the S&P 500 jumped 43.05 points or 1.1 percent to 4,110.41.

The rally on Wall Street came as traders continued to pick up stocks at relatively reduced levels after the major averages snapped a three-week losing streak last week, bouncing well off their lowest levels in over a month.

Optimism about a slowdown in inflation also contributed to the strength On Wall Street ahead of the release of a closely watched report on consumer prices on Tuesday.

The report is expected to show a continued slowdown in the annual rate of consumer price growth to 8.1 percent in August from 8.5 percent in July.

Meanwhile, the annual rate of growth by core consumer prices, which exclude food and energy prices, is expected to tick up to 6.0 percent in August from 5.9 percent in July.

Buying interest waned somewhat as the day has progressed, however, as the data is not likely to impact for a 75 basis point interest rate increase by the Federal Reserve next week.

“Wall Street is locked into Tuesday’s inflation report that will likely show pricing pressure relief but will not change the Fed from maintaining an aggressive stance of tightening monetary policy,” said Edward Moya, senior market analyst at OANDA.

He added, “Even if inflation falls below the 8% level, the Fed should still deliver a 75 basis-point rate hike at the September 21st policy decision.”

Reports on producer prices, import and export prices, retail sales, industrial production and consumer sentiment are also likely to attract attention in the coming days.

Sector News

Natural gas stocks turned in some of the market’s best performances on the day, driving the NYSE Arca Natural Gas Index up by 2.4 percent.

The rally by natural gas stocks came amid a sharp increase by the price of the commodity, with natural gas for October delivery surging $0.253 to $8.249 per million BTUs.

A significant increase by the price of crude oil also contributed to considerable strength among oil stocks, as reflected by the 1.7 percent gain posted by the NYSE Arca Oil Index.

Gold stocks also moved notably higher along with the price of the precious metal, resulting in a 1.5 percent advance by the NYSE Arca Gold Bugs Index.

Transportation, computer hardware and retail stocks also showed strong moves to the upside, moving higher along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher on Monday, with markets in China, Hong Kong and South Korea closed for holidays. Japan’s Nikkei 225 Index shot up by 1.2 percent, while Australia’s S&P/ASX 200 Index jumped by 1.0 percent.

The major European markets also showed strong moves to the upside on the day. While the German DAX Index soared by 2.4 percent, the French CAC 40 Index spiked by 2.0 percent and the U.K.’s FTSE 100 Index surged by 1.7 percent.

In the bond market, treasuries turned lower over the course of the session after seeing early strength. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 4.1 basis points to a nearly three-month closing high of 3.362 percent after hitting a low of 3.262 percent.

Looking Ahead

Trading on Tuesday is likely to be impacted by reaction to the Labor Department’s report on consumer prices in the month of August.

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