Dow surges more than 200, 4-day winning streak

Javier Stokes
February 16, 2018

Stocks climbed on Thursday after Wall Street ignored strong USA inflation data. The increases may rattle financial markets, as investors are hyper-focused on whether faster price increases may cause the Federal Reserve to raise short-term interest rates faster than expected. Germany's DAX rose 1 percent, while France's CAC grew 0.8 percent. The Nasdaq climbed 112 points, or 1.6 percent, to 7,256. It climbed $1.99, or 4.7 percent, to $44.08.

After a 10 percent plunge in just nine days, the S&P 500 has risen 4.5 percent in the last four days.

The Dow Jones Industrial Average rose 306.88 points (1.23 per cent) to end the day at 25,200.37. "Since 1971, the S&P 500 (TR) has gained about 20 percent on average in rising rate periods, has gained eight of nine times and has gained almost 40 percent twice with less than a 4-percent loss for its worst rising rate period". As a result, Facebook, Amazon.com, and Apple saw their shares perk up.

The VIX index, which is Wall Street's "fear gauge" and a measure of market volatility, plummeted below 20, less than half the 50-point peak that was hit the previous week.

Tech giant Cisco rose 5.3 percent after reporting better-than-expected earnings.

Goldman Sachs and other analysts pointed to a number of factors behind their upbeat global forecast including China's plan to generate high single-digit growth, Europe's re-emergence from its sovereign debt woes, and USA tax cuts and increased spending. The broad index rose as much as 0.7 percent.

The Dow Jones Industrial Average temporarily dropped 150 points after U.S. bond yields briefly touched 4 year highs following the release of a better-than-expected United States consumer price index.

Investors have pointed to other reasons why stocks were higher. Bond yields jumped after the inflation data but did not reach levels that would be considered risky for equities.

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". The ability of the markets to spit out bad news in terms of the higher inflation, weaker sales is a pretty strong sign", Brown said.

According to Meckler, the concern lay on bond rates adjusting significantly higher in response to inflation data. The rising yields helped send banks higher.

"Inflation has to be put into context", said Joseph LaVorgna, the chief economist for the Americas at Natixis in NY. Silver rose 35 cents, or 2.1 percent, to $16.88 an ounce.

Gold jumped $27.60, or 2.1 percent, to $1,358 an ounce.

But those concerns were tempered by data showing USA retail sales fell 0.3% last month, the biggest decline in almost a year. This was its biggest decline in 11 months, falling well below expectations for a 0.2 percent increase, indicating slower growth that accompanies higher inflation.

"A lot of investors are looking for opportunities or pull backs to put money to work - there's still a lot of cash out there looking for something to do, so I think we're back to "buy the dips" mentality here". "Strong price data presents hawkish risks for the Fed's dots at the March meeting".

After last week's turmoil, investors seem to have rediscovered their appetite for risk. "Meanwhile, retail sales results have caused a downgrade of GDP estimates across the Street".

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