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The Dow Jones Industrial Average jumped on Monday, recovering some of the previous week’s steep losses, as traders looked ahead to the highly anticipated Federal Reserve meeting and new inflation data.
Blue-chip Dow added 412 points, or 1.2%. The S&P 500 jumped 1% and the Nasdaq Composite was up 0.9%.
A rally in Boeing shares pushed the Dow higher on reports that the airline is close to a deal with Air India. Elsewhere, energy stocks rallied as oil prices stabilized after several weeks of declines.
Wall Street is coming off a rocky week that saw all three major averages lose ground. The Dow and the S&P 500 posted their worst weekly losses since September, falling 2.77% and 3.4%, respectively. The Nasdaq fell 4%.
“Today’s stock is mostly a reflex rebound after last week’s poor performance,” said Yung-Yu Ma, chief investment strategist at BMO Wealth Management. “There is probably cautious optimism ahead of tomorrow’s CPI report, but also some underlying concern. We can see that concern today in a bull market for equities that actually has the VIX soaring.”
“Europe, which outperformed last week, is down today while the US is rebounding,” he added. “Speak to a volatile market with low conviction; strong markets have better consistency.”
A slew of dealmaking activity boosted sentiment. Coupa Software and Horizon Therapeutics were among the biggest movers on Monday after the companies announced they had agreed to be bought.
Meanwhile, a New York Fed poll showed that consumers had become more optimistic about inflation in November. The bank’s consumer expectations survey showed that consumers expected one-year inflation to hit a pace of 5.2%, down 0.7 percentage points from October.
The November consumer price index is due out on Tuesday and traders will be looking for a sign that inflation is easing. On the same day, the Federal Reserve will begin its two-day meeting and is expected to announce another rate hike on Wednesday, although traders are anticipating a smaller move than in recent months.
In addition to the expected rate hike, the Fed’s updated economic projections and Chairman Jerome Powell’s press conference could be key signals for what the central bank wants to do in the coming months.
“Financial conditions have improved markedly since the October CPI reading released last month, so the Fed will likely use the December FOMC meeting to bring them back,” said Cliff Hodge, chief investment officer at Cornerstone Wealth. “We think the markets are too bullish on rates after the first quarter and expect Powell to take a more aggressive tone and for the dots to indicate higher rates for a longer period of time than futures markets currently price in.”
