Dow futures build on 2-month high as investors weigh data on retail sales, inflation

How are stock-index futures trading

• S&P 500 futures
  ES00,
  +0.22%
  rose 12.25 points, or 0.3%, to 4,523.25.

• Dow Jones Industrial Average futures
  YM00,
  +0.20%
  were up 67 points, or 0.2%, at 34,954.

• Nasdaq-100 futures
  NQ00,
  +0.32%
  added 78 points, or 0.5%,to trade at 15,957.75.

The S&P 500
SPX
soared 1.9% on Tuesday for its biggest one-day percentage gain since April 27, while the Dow
DJIA
surged 490 points, or 1.4%. Both indexes scored their highest close since Sept. 14. The Nasdaq Composite
COMP
jumped 2.4% for its highest close since Aug. 1.

What’s driving markets

Stock futures maintained gains after the October producer-price index fell 0.5% in October. Economists polled by The Wall Street Journal had forecast a 0.1% advance. The core producer-price index, which excludes volatile food, energy prices, and trade services rose 0.1% in October, down from an 0.3% gain in the prior month.

U.S. retail sales fell 0.1% in October and dropped for the first time in seven months, but the decline is unlikely to last as the U.S. enters the holiday shopping season. Economists polled by The Wall Street Journal had forecast a 0.2% drop in sales. It was the first negative reading since March.

Analysts said the PPI data held little sway after the reaction to Tuesday’s CPI readings.

But the data alongside the retail-sales figures “supports our view that consumer price inflation will continue to fall more rapidly than many expect, even as activity in the real economy holds up under the weight of higher rates,” said Paul Ashworth, chief North America economist at Capital Economics, in a note.

The rally, which pushed the S&P 500 back above its 100-day moving average, took its gains for the month to 7.2% and 17.1% for the year, came after a consumer-price index report showed inflation in October surprisingly flatlined. The annual pace of CPI inflation also was cooler than expected at 3.2%.

The signs of easing price pressures has raised hopes that not only is the Federal Reserve now finished raising interest rates for this cycle, but it is now more likely to trim them next year. Markets are pricing in a 47% chance of a 25 basis point rate cut to a range of 5.00 to 5.25% in May, up from 32% a month ago.

Borrowing costs have tumbled, with the 10-year Treasury yield
BX:TMUBMUSD10Y
now down nearly 60 basis points from the 16-year high just above 5% touched last month.

Especially rate-sensitive parts of the equity market have been revived, with the Russell 2000
RUT
index of smaller companies jumping 5.4% on Tuesday, its biggest gain in just over a year.

“[M]ore bets are being placed on cuts to interest rates coming in the Spring. The upbeat sentiment looks set to continue to provide a tailwind to trading later on Wall Street,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

However, some observers cautioned that the market’s latest ebullience was a bit much. “I think people are overreacting to short-term numbers,” JPMorgan CEO Jamie Dimon told Bloomberg TV on Tuesday. “I’m afraid inflation might not go away that quickly,” and while the Fed was right to halt rate hikes for now “they might have to do a little bit more,” Dimon said.

Fed Vice Chair for Supervision Michael Barr testifies to the House Financial Services Committee at 9:30 a.m. Eastern time and Richmond Fed President Tom Barkin will speak at 3:30 p.m.

Meanwhile, broader market sentiment was underpinned Wednesday by news out of China. Data showed consumer and industrial activity in the world’s second biggest economy expanded faster than expected last month, while reports Beijing was planning a 1 trillion yuan ($137 billion) support package for the property sector also encouraged investors.

Companies in focus

• Target Corp.
  TGT,
  +17.83%
  shares jumped 14% in premarket trade after the discount retailer reported a surprise increase in fiscal third-quarter profit, beating projections by a wide margin.