Why is the ASX 200 having such a cracking day on Wednesday?

The ASX 200 is flying higher today.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The S&P/ASX 200 Index (ASX: XJO) is off to the races today.

In morning trade, the benchmark index is up a stellar 1.4%, at 7,104 points, having earlier posted gains of more than 1.6%.

And ASX tech shares are leading the charge. The S&P/ASX All Technology Index (ASX: XTX) – which also contains smaller companies outside of the ASX 200 – is up a whopping 1.8% at the time of writing.

So, what's going on?

Green stock market graph with a rising arrow symbolising a rising share price.

Image source: Getty Images

ASX 200 rallies on slowing US inflation

It looks like Aussie investors have slowing inflation in the world's largest economy to thank for today's big ASX 200 rally.

As in Australia with the RBA's hawkish tightening cycles, soaring inflation in the United States has seen the Federal Reserve aggressively boosting interest rates, commencing in early 2022. And higher interest rates tend to throw up headwinds for many stocks.

In the latest report, released overnight, headline US inflation declined to 3.2% for the full year through October, dropping from a 3.7% annual reading over the past two months. And the 4% core inflation reading, which excludes volatile items like energy and food, came in at the slowest pace in two years.

With many analysts now believing we've seen the last rate hike from the US Fed, investors reacted by sending the S&P 500 Index (INDEXSP: .INX) up 1.9%. Like with the ASX 200 today, that's right near a two-month high.

And as with ASX tech shares, US tech stocks were some of the biggest gainers, with the Nasdaq Composite Index (INDEXNASDAQ: .IXIC) closing up 2.4%.

Beyond an end to rate hikes, a number of prominent market experts are upping their bets on pending rate cuts from the Fed.

Among them, Cathie Wood, CEO of ARK Investment Management, says that deflation pressures are already beginning to emerge in the US.

According to Wood (courtesy of Bloomberg):

The Federal Reserve has overdone it, we're going to see a lot more deflation going forward. If we're right, and they've gone way too far, they'll have to cut fairly significantly.

If Wood does have this one right and the Federal Reserve begins to reduce interest rates "fairly significantly", that would prove good news for ASX 200 investors as well.

If history tells us anything it's that where the Fed goes the RBA tends to follow.

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.

More on Share Market News

Businessman working and using Digital Tablet new business project finance investment at coffee cafe.
Broker Notes

Buy, hold, sell: Cochlear, South32, and Westpac shares

Analysts have given their verdict on these popular shares.

Read more »

Woman with a scared look has hands on her face.
Share Market News

These are the 10 most shorted ASX shares

Let's see which shares short sellers are targeting this week.

Read more »

A young man goes over his finances and investment portfolio at home.
Broker Notes

Buy, hold, sell: ANZ, Breville, and Macquarie shares

Is Morgans bullish or bearish on these shares in April? Let's find out.

Read more »

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave buy ratings to these ASX shares last week. Why are they bullish?

Read more »

Man sitting in a plane seat works on his laptop.
Broker Notes

Down 34% in 2026, are Virgin Australia shares a good buy today?

A leading analyst delivers his outlook for Virgin Australia’s beaten-down shares.

Read more »

Red buy button on an Apple keyboard with a finger on it.
Broker Notes

Brokers name 3 ASX shares to buy right now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A smiling woman holds a Facebook like sign above her head.
Broker Notes

Why these ASX shares are rated as buys in April

Let's see what makes them bullish on these names right now.

Read more »

Australian dollar notes in the pocket of a man's jeans, symbolising dividends.
Broker Notes

Are CBA shares still a good buy for passive income?

A leading analyst delivers his verdict on CBA’s passive income appeal.

Read more »