Dow jumps 556 points as money rotates out of tech

The Dow gained 556 points on Thursday while the Nasdaq finished nearly flat. That gap is the story of the session. After a US inflation reading far hotter than expected, investors are dumping technology and buying everything else. The market is not breaking down, it is shifting its weight.

The Dow climbs, the Nasdaq does not follow

The Dow closed at 52,177.69, up 556.21 points or 1.08%. The S&P 500 added just 0.33% at 7,744.06 and the Nasdaq Composite 0.08% at 26,713.03, according to HDFC Sky. Ten of the eleven S&P 500 sectors rose. Healthcare gained 2.5%, consumer staples 2.2%, materials and consumer discretionary 1.4% each. Only technology, down 1.1%, and energy, down 1.3%, closed in the red. Small caps in the Russell 2000 jumped 1.37%.

Put simply, a portfolio holding only big tech missed the session. A plain diversified portfolio had a very good day.

Inflation set off the rotation

It started with Wednesday's number. US CPI rose to 3.7% year on year in September, up from 3.4% in August and above the 3.6% forecast, CBS News reports. Core inflation climbed to 2.6%. Gasoline accounted for more than half the monthly increase, with a 9.1% jump in a single month.

Producer prices hammered the point home a day later. September PPI surged 6.3% year on year and 1.3% on the month, the biggest monthly rise since March 2022, per BLS data reported by Transport Topics. When costs rise for producers, they reach the consumer a few months later.

Adam Crisafulli of Vital Knowledge summed it up bluntly. The report "was clearly hot, and there aren't many ways to sugarcoat it."

The October 28 Fed meeting is now the real question

Markets repriced where it counts. The odds of a rate hike at the October 28 meeting moved from roughly 22% before the inflation data to 41.5% on the CME FedWatch tool, Yahoo Finance notes. The policy rate already sits between 3.75% and 4.00% after September's increase.

Fed chair Kevin Warsh gave nothing away on Friday morning in Bangkok at the IMF meetings. He only described October and December as the meetings where everything gets decided, investingLive reports. Stephen Brown of Capital Economics argues the price pressure is broad enough to put October back in play.

One detail matters for what comes next. Despite all of this, the US 10 year yield fell back toward 5.06%, down more than ten basis points. The bond market does not yet believe in a long hiking cycle. That disconnect is exactly what let the rest of the market rally. Our daily index coverage sits in the market section.

Key levels today

Levels drawn from work by Silvio Pascali and ATFX.

Economic calendar

10:00 London time, euro area final September inflation. An upward revision would pull the ECB back into the conversation and support the euro against the dollar.

13:30, US import and export prices. If import prices accelerate again, traders will add to the odds of an October 28 hike and tech will take another hit.

14:15, US industrial production for September, expected at +0.4%. A stronger print strengthens the too hot economy case and lifts short term yields. A negative print and the cyclicals that just rallied give back part of their gains.

The bottom line

The Dow rode a rotation out of technology set off by US inflation picking up again. While the October 28 Fed decision stays undecided, this gap between the indexes has every reason to persist.

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This is not investment advice.