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Kevin Matras   
Profit from the Pros
By Kevin Matras
Executive Vice President
Zacks Investment Research

Stocks Soar On Better Than Expected CPI Report, Nasdaq Exits Bear Market

Stocks closed sharply higher yesterday with the Dow up 1.63%, the S&P up 2.13%, and the Nasdaq up 2.89%.

Yesterday's better than expected Consumer Price Index (CPI) inflation report sent stocks soaring.

But before I get into that, let me point out that yesterday's rally officially saw the Nasdaq exit their bear market and begin a new bull market.

Just like a -20% decline from the highest close marks the end of a bull market and the beginning of a bear market, a 20% increase from the lowest close marks the end of a bear market and the beginning of a bull market.

The Nasdaq needed to close above 12,775.32 from their low close of 10,646.10. With their close at 12,854.81, they are now up 20.75% from their low close.

Now, that doesn't mean stocks are going to go straight up from here. There's likely to be plenty of bumps along the way. And the Nasdaq is still down -19.94% from their all-time high close. (At the Nasdaq's worst, they were down -33.70%.) But it does suggest the worst may be over for the Nasdaq now that their bear market has ended.

As noteworthy as the Nasdaq's bear market exit is, it should also be noted that the S&P has not yet exited their bear market. The S&P is 'only' up 14.82% from their low close. And the S&P is still down -12.22% from their all-time high close.

BTW, the Dow never entered a bear market. At their worst, they were down -18.78%. Although, the Dow is up 11.30% from their low close, but still remains down -9.48% from their all-time high close.

While we could see the S&P play catch up immediately and exit their bear market right behind the Nasdaq, I would imagine we'll see a rolling bear market exit in much the same way that we saw a rolling bear market beginning.

You'll remember that the Nasdaq entered their bear market in March of this year. But it wasn't until June that the S&P fell into a bear market.

And we could see the same staggered cadence this time too.

Either way, the worst really does look like it's behind us. And that is great news.

Yesterday's CPI report showed that while inflation is still hot at 8.5% y/y, that's down from last month's 9.1% and the consensus for 8.7%. A big drop in energy prices helped lower the headline number. Although, ex-Food & Energy (core inflation), it remained steady at 5.9% y/y vs. last month's 5.9% reading, while beating the consensus of 6.1%.

In other news, the Atlanta Fed Business Inflation Expectations came in at 3.5% y/y vs. last month's 3.7%.

And MBA Mortgage Applications rose 0.2% with the Purchase Index down -1.4% and Refi's up 3.5%.

We'll get another look at inflation today with the Producer Price Index-Final Demand (PPI) report. We'll also get another look at the jobs market with the Weekly Jobless Claims report.

And we'll get more earnings with another 544 companies set to report today (741 in total thru the rest of the week).

At the moment, all of the major indexes look poised to close higher for the week, which would make it 4 weeks in a row for the S&P and Nasdaq, and 3 out of 4 weeks for the Dow.

BTW, if you're looking for new stock ideas to take advantage of the current market, be sure to read our latest commentary...

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See you tomorrow,

Kevin Matras

Executive Vice President, Zacks Investment Research


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