S&P 500 leaps to 2-month high on latest US inflation data

The S&P 500 rocketed 1.9% overnight, its best performance in seven months.

Man pointing at a blue rising share price graph.

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The S&P 500 (INDEXSP: .INX) just finished a scorcher of a day on the heels of the latest inflation print out in the United States.

The key US benchmark index closed up 1.9% yesterday (overnight Aussie time).

That's the biggest one-day gain since April, and it sent the S&P 500 to a fresh two-month high.

The market rally saw all the big US indexes finishing higher. Tech stocks had a particularly smashing day, with the Nasdaq Composite (INDEXNASDAQ: .IXIC) ripping 2.4% higher by market close.

And it wasn't just US markets enjoying a big lift. All the major European indices also finished the day well into the green.

Why did the S&P 500 soar on the US inflation report?

You've likely guessed by now that the inflation reading out of the world's top economy came in on the low end.

Indeed, headline inflation came in at 3.2% for the 12 months through to October, down from the 3.7% annual price rises recorded last month.

Importantly, that also came in slightly below consensus estimates, with a Reuters survey of economists forecasting inflation would come in at 3.3%.

Also helping boost investor sentiment, and the S&P 500, was a marked slowdown in core inflation, which excludes volatile items like energy and food. That came in at 4% over the 12-month period, the best print in two years.

Stocks are rallying on the hopes that we've now seen the last interest rate hikes from the US Federal Reserve. And investors are increasingly confident that the world's most watched central bank can now bring inflation down to its target level without sending the economy into a recession.

Eric Kuby, chief investment officer at North Star Investment Management (quoted by Reuters) said, "The broader market has been challenged with this consensus negative view about both a recession and inflation."

Kuby added, "Reality is telling a different story. This does feel like a Goldilocks moment for the entire market."

Meantime, Great Hill Capital chair Thomas Hayes sounded confident we've seen the last interest rate hike from the Fed in the current cycle.

According to Hayes:

We're happy to see both headline and core CPI come in lower than expected. It's telling us that the Fed is done, there's nothing left for it to do here.

You have to keep an eye on the potential for deflation, but right now this is Goldilocks. This is what the Fed was looking for, slowing inflation, slowing labour market and the economy's holding up at the same time.

Goldilocks or not, the slowdown in US inflation has certainly offered some tailwinds for the S&P 500 and for markets the world over, including the S&P/ASX 200 Index (ASX: XJO), up 1.6% today in early trade.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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