The U.S. stock market is witnessing a significant rise on Tuesday, fueled by the release of a subdued October inflation report. This marks the first time since March that the S&P 500 index has experienced a gain of over 1% in response to the monthly CPI Index data.

In comparison to 2022, when the market witnessed substantial daily gains and losses following CPI reports, stocks' reaction to CPI data in 2023 has been relatively muted. This distinctive response shows that extreme reactions to inflation data are uncommon, as indicated by analysts from Bespoke Investment Group.

According to the analysts at Bespoke, this surge represents only the 17th instance since 1998 that the SPDR S&P 500 ETF Trust (SPY), commonly known by its ticker symbol SPY, has witnessed a surge of 1% or more on a CPI day.

As per FactSet data, the S&P 500 Index (SPX) experienced a gain of over 2% on Tuesday morning, which positions it for the highest daily gain since January 6. Moreover, there is potential for further gains in the final hour of trading, as suggested by Bespoke.

Conclusion

This upbeat market performance following the CPI data reflects a positive sentiment among investors. Despite historical tendencies, this recent surge demonstrates the market's resilience and could signal a promising outlook for future gains.

Traders Closely Monitor the Final Hour of the U.S. Market Day

Many large asset managers, corporations, and other institutions often carry out their trades towards the end of the market day in the United States. This is why traders pay such close attention to the final hour of trading. According to Bespoke, when there have been strong gains earlier in the session on days when the Consumer Price Index (CPI) is released, it has typically led to further gains heading into the market close.

October CPI Data Shows No Rise in U.S. Consumer Prices

The headline CPI Index for October, released before the U.S. market opened on Tuesday, revealed that U.S. consumer prices did not increase last month. However, "core" prices, which exclude volatile food and energy prices, rose by 0.2%. This was slower than the 0.3% growth that economists had anticipated.

See: U.S. inflation flat in October thanks to lower gas prices; CPI shows no significant price rise.

Market Expectations: Fed Likely to Halt Rate Increases and Consider a Cut

The latest data solidified market expectations that the Federal Reserve will likely cease raising interest rates and may even cut rates as early as March. The decline in inflation pressures supports this view.

"The CPI data confirm what everyone already knew - inflation is decreasing significantly," commented Jamie Cox, managing partner for Harris Financial Group.

He further emphasized, "The question now for the Fed is whether they continue to believe that slowing the economy into a recession is necessary to completely combat inflation. I sincerely hope not."