Early gains in the stock market faded by midday although indexes remained higher after November inflation continued to decline. About a dozen stocks moved into buy points, but some of those breakouts also faded.
X
The Nasdaq jumped more than 3% early, but pared its gains to 1.3%. The S&P 500 cut its gains by more than half, to 1%, and the Dow Jones Industrial Average rose 0.4%.
Volume rose on the NISE and Nasdaq compared to the same time on Monday.
The Innovator IBD 50 ETF (FFTI) trimmed its gains to 0.7% midday.
Inspire Medical Systems ( INSP ) led the index with a 6% jump after Goldman Sachs upgraded the sleep apnea treatment company to buy from neutral. The stock hit a 20% profit target from its 212.22 buy point.
Thoreau (TTC) is trying to rally above the buy point at 113.47 of the three-week narrow pattern. Lattice Semiconductor (LSCC) broke the entry at 73.63, but volume was weak. IBD 50 Monday Stocks to Watch Analog Devices (ADI) trailed above the cup-handle buy point at 173.40, but gave back most of its early gains.
Outside the IBD 50, Anheuser Busch InBev (BUD) and CBIZ (CBIZ) is holding above a buy point, according to screens at MarketSmith.
But CDV (CDV), Vici Properties (JOKE), Amdocs (DOX) and Steel (CALKS) returned below a buy point in midday trading.
The inflation report calms the stock market
November’s Consumer Price Index (CPI) rose only 0.1% month-on-month and 7.1% year-on-year. That’s down from a 0.4% month-on-month increase and a 7.7% annual rate in October. The latest 12-month CPI was the lowest since December 2021.
The core CPI, which excludes food and energy, also showed moderation compared to October’s figures. It rose 0.2% month-on-month and 6% year-on-year, also better than expected.
At midday, the yield on the 10-year Treasury fell 13 basis points to 3.48%.
Chris Zaccarelli, chief investment officer for the Independent Advisor Alliance, believes the CPI should make investors more confident by the end of the year.
“Santa is coming after all,” he said in the note. “In addition to more room for the Fed to operate (due to the lower inflation reading), investors are positioned so bearish that there will be a rush to cover shorts and bulls will press their advantage.”
The Fed could find room to slow the tightening
BMO Capital Markets senior economist Sal Guatieri said the reduced November CPI “fully clears the way for the Fed to reduce the pace of rate hikes tomorrow (to 50 bps).”
With further moderation, the Fed may need to raise rates only slightly in 2023 to limit its tightening cycle. “With the bulk of the policy effects occurring next year, we still see a shallow decline, but better inflation news of late greatly reduces the chances of a more severe outcome.”
Today’s rally puts the uptrend in the stock market on better footing, but not necessarily on a clear upward path.
The Nasdaq maintained its pullback to its 50-day line and previously hit its highest level since September 21. However, there was resistance around that level. The Dow’s 50-day moving average is getting closer to breaking above the 200-day line.
The S&P 500 held just above its 200-day moving average after paring gains.
Stock market action on moving averages
Some chart readers have expressed concern that the S&P 500 is facing potential resistance as it touches a trend line drawn across highs dating back to the January peak. The index is trying to move above that critical line today.
Note that earlier inflation-linked rallies have faded. The Nasdaq Treasury’s 4.4% gain on comments from Fed Chairman Jerome Powell on Nov. 30 disappeared just days later. And just a week ago, the S&P failed in its latest attempt to break the 200-day line.
On Wednesday, the Fed announces its next steps on monetary policy. With that comes the possibility of surprises for investors.
Dov component Boeing (BA) rose 1% to its highest price since April. United Airlines (UAL) has agreed to buy 100 787 Dreamliners, a deal worth $30 billion before discounts. United also picked up options for 100 additional 787s. United shares reversed 6% lower, slipping from a buy point of 45.67.
Modern (MRNA) increased by more than 23% after cooperation with the Dow Jones component Merck (MRK) has produced positive trials of the vaccine for melanoma recurrence, when combined with Merck’s cancer drug.
Modern has broken out of a cup-handled base and is now extended from a buy point of 188.75. Merck rose 0.6%.
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