The Dow Jones Industrial Average rose about 1,100 points, or 2.15%, to 52,395 on Monday. The S&P 500 gained 2.35% to 7,550 and the Nasdaq 2.74%, as Brent crude fell 5.9% to $92.19 a barrel and WTI 4.4% to $86.37.
That took back a large part of last week's sell-off in a single session. Now the same market faces its biggest test of the week: October's consumer price report, out today.
Oil did the heavy lifting
The rally started with oil. Cheaper crude eases two fears at once: higher inflation, and a wider war in the Gulf. With Brent down from about $98 at Friday's settlement, traders bet that some of the energy push behind inflation is fading.
Chip stocks joined in. AMD jumped 13.3%, helped by an upgrade from Oppenheimer, and CoreWeave rose 5.6%. Constellation Energy climbed 10.5% after raising its full-year earnings guidance, a sign that the data-centre power trade is back. The big exception was Nvidia, which fell 4.3% on its board's investigation into CEO Jensen Huang.
The speed of the move also says something about positioning. Deutsche Bank had put investors' stock exposure at just its 20th percentile after last week's selling. When that many funds are underweight, a single good day forces them to buy back quickly, and that buying feeds on itself.
Today's number: 0.3% headline, 0.2% core
Economists polled by Reuters expect consumer prices to have risen 0.3% in October, after 0.6% in September, and 0.2% excluding food and energy, after 0.3%. Retail gasoline prices fell 0.9% during the month, which should help.
The bar matters because the Fed is close to hiking again. Traders put the chance of a December rate increase at about 85% late on Monday, according to Reuters, with the Fed's range at 3.75%–4%. Joseph Brusuelas of RSM warned of "stubborn and sticky inflation, especially in the service sector."
The risk: a hot core number undoes Monday
Core matters most. A 0.3% or higher reading excluding food and energy would say services inflation isn't cooling, whatever oil does.
A hike is nearly priced in. With odds near 85%, a December move is largely expected. The bigger risk from a hot number is a signal of more hikes after that.
Oil can turn back. The Gulf conflict hasn't ended. Saudi Arabia reported another attack on its East-West pipeline on Monday, with operations unaffected.
What would extend the rally
A core reading of 0.2% or lower, plus oil holding near $92, would support Monday's move and give under-invested funds more reason to buy. After CPI, the week's next tests are CoreWeave's results today and Applied Materials and Cisco on Thursday.
Monday was oil's rally. Today it has to become the market's.
Sources: TradingKey (9 Nov, closing data); StockTitan (9 Nov); Investing.com (7 Nov), citing Deutsche Bank; Reuters via SRN News (10 Nov); Al Jazeera (9 Nov).