Why the S&P 500, Nasdaq and Dow Are Up This Week

what happened

Stocks in all major market indices are rising this week. This is largely due to better-than-expected inflation data, after some volatility earlier this week.

of S&P 500A benchmark for the broader market, according to data provided by S&P Global Market Intelligence. NASDAQ Compositea good proxy for the tech sector, rose more than 6% this week, Dow Jones Industrial Average closed 4% higher on Thursday.

So what

The market got off to an interesting start this week, with most investors thinking about the midterm elections. The country is fairly divided politically, but I think most investors saw the event as a potential catalyst as they expected Congress to be divided. This has historically been good for the market.

Image Source: Getty Images.

At the time of this writing, votes are still being counted, but it looks like Congress will either split or the Republicans will dominate Congress. All in all, it’s still a pretty good picture for investors, as Congress and government could split alike as they still hold the majority of seats in the midterm elections. It tends to work fine after.

But the week saw an interesting shift when FTX, one of the world’s largest cryptocurrency exchanges, suddenly found itself in a liquidity crisis following rumors about the company’s balance sheet and potential solvency problems. accomplished. To deal with customer withdrawals, another major cryptocurrency exchange, Binance, said it would acquire the company pending due diligence. However, the next day, Binance withdrew from the trade, suggesting that buying FTX was likely not worth the trouble it caused.

The cryptocurrency market plummeted after Binance pulled out of the deal. I think some of this pain spilled over into the broader financial markets as well. Stocks and cryptocurrencies are trading more similarly this year than in the past.

Fortunately, new inflation data for October saved Thursday’s week. The Consumer Price Index (CPI), which tracks the price of a market basket of consumer goods and services, rose only 0.4% from September and rose 7.7% year-on-year in October. Both figures were below expectations. Notably, the CPI lowered prices for food, used cars, transportation and medical services.

October’s CPI report provides the best evidence yet that inflation is slowing. That could allow the Federal Reserve to keep its foot off the gas and slow the pace of rate hikes at least at its December meeting, which could end up being just 0.5 percentage points. The Fed is about to end his fourth straight rate hike by 0.75 percentage points. Thursday’s CPI news sent stocks soaring, giving him the best day in two years for the S&P 500 and Nasdaq.

So

Given that I agree with the notion of long-term investing, I believe all three of these broad market indices will rise in the long term.

In the short term, the slowing pace of rate hikes will continue to boost equities, but the market could be challenged again if there are signs of a severe recession in 2023.

But again, history shows that these broader market indices tend to perform well over the long term, so I think history is bound to repeat itself in the future.