The S&P and Nasdaq were well on their way to snapping six-day losing streaks in Thursday trading, and the Dow also rallied, with all three indexes soaring more than 2.5% each.
The remarkable rebound belied the gloom at the start of the session, with stocks plunging to yearly lows shortly after the open on hot retail inflation data.
By late afternoon, the tech-heavy Nasdaq Composite (COMP.IND) was 2.31% higher at 10,657.93 points, and the benchmark S&P (SP500) had gained 2.78% to 3,676.53 points. The blue-chip Dow (DJI) was +3.04% at 30,097.70 points, helped by gains in pharmacy retailer Walgreens and major bank JPMorgan.
The initial CPI-inspired plunge saw the Dow and S&P fall to near 2-year lows. The data all but confirmed a big rate hike at the Federal Reserve's next meeting. The central bank has raised rates by 75-basis-points for three meetings in a row and is widely expected to do it again by the same margin in December.
Bargain hunters quickly stepped in and by mid-day, stocks were firmly in positive territory. With equities now at such lows, possible speculation could even build about having reached a bottom.
In the bond market, Treasury yields gave back the highs they had scaled earlier after the CPI report.
The consumer price figures data were the hot topic of the day, with CPI rising a bigger-than-expected 0.4% in September, compared to the previous month. This equated to an annual rate of 8.2%.
"You had your knee-jerk reaction, everyone was positioned for the worst-case scenario and you got it. The numbers couldn't have been any worse," Thomas Hayes, chairman at investment management firm Great Hill Capital, told Seeking Alpha.
Core CPI gained at its highest annual pace in 40 years, rising 0.6% for the month and 6.6% for the year.
"This is largely supply driven inflation unlike the 1970s which was demand driven inflation. (The Fed) just have to let it run its course," Hayes added.
The market odds now see a 95% chance of a 75-basis-point hike, compared with an 80% chance seen prior to the inflation data. This would mark the central bank's fourth straight hike by that amount. Fed funds futures are also now pricing in 75 bps in December, up from 50. Terminal rate expectations rose to 4.85% in March.
Thursday also saw the release of weekly jobless claims data, which rose more than expected to 228K.
Among active stocks, car dealers Carvana and CarMax declined after the CPI report reflected a continued drop in used automobile prices. Grocery store chain Albertsons rose on reports that it was in talks with rival Kroger to combine.
Walgreens jumped on strong quarterly results. JPMorgan also boosted the Dow, rising ahead of its financial report due tomorrow, along with a host of other major banks including Citigroup and Wells Fargo that kick off the fourth quarter earnings season.