The stock market's early gains faded at midday although indexes remained higher after November inflation continued to abate. About a dozen stocks topped buy points, but some of those breakouts also faded.
The Nasdaq jumped more than 3% early on but pared its gain to 0.2% at 12:50 p.m. ET. The S&P 500 cut its gain to 0.2%, and the Dow Jones Industrial Average reversed lower 0.2%. The Russell 2000 was up a relatively better 0.4%.
Volume swelled on the NYSE and Nasdaq compared with the same time on Monday.
The Innovator IBD 50 ETF reduced its gain to 0.1% at midday.
Inspire Medical Systems led the index with a 6% jump after Goldman Sachs upgraded the sleep apnea treatment company to buy from neutral. The stock reached the 20% profit target from its 212.22 buy point.
Toro is trying to rise above the 113.47 buy point of a three-weeks-tight pattern. Lattice Semiconductor broke out of a handle entry at 73.63 but volume was weak. Monday's IBD 50 Stocks to Watch pick Analog Devices gapped above a 173.40 cup-with-handle buy point but gave back much of its early gain.
Outside the IBD 50, Anheuser Busch InBev and CBIZ held above buy points, according to screens in MarketSmith.
But CDW, Vici Properties, Amdocs and Calix were back below buy points in midday trading.
Inflation Report Soothes Stock Market
The November consumer price index (CPI) climbed just 0.1% from the previous month and 7.1% on an annual basis. That's down from a 0.4% increase month to month and a 7.7% annual rate in October. The latest 12-month CPI reading was the lowest since December 2021.
Core CPI, which excludes food and energy items, also showed moderation from October's numbers. It rose 0.2% from the previous month and 6% on an annual basis, also better than expected.
At midday, the yield on the 10-year Treasury was off 13 basis points to 3.48%.
Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance, believes the CPI should make investors more confident for the remainder of the year.
"Santa is coming after all," he said in a note. "In addition to more room for the Fed to operate in (because of the lower inflation reading), investors have been positioned so bearishly that there is going to be a rush to cover shorts and the bulls will press their advantage."
Fed May Find Room To Slow Tightening
BMO Capital Markets Senior Economist Sal Guatieri said the subdued November CPI "fully paves the way for the Fed to scale back the pace of rate hikes tomorrow (to 50 bps)."
With further moderation, the Fed may only need to increase rates lightly in 2023 to cap its tightening cycle. "With the bulk of the policy effects to hit home next year, we still see a shallow downturn, but the better inflation news of late greatly reduces the chances of a more severe outcome."
Today's rally puts the stock market's uptrend on better footing, but not necessarily on a clear upward path.
The Nasdaq held off a pullback to the 50-day line and earlier was at the highest level since Sept. 21. There's been resistance around that level, however. The Dow's 50-day moving average is getting closer to crossing above the 200-day line.
The S&P 500 held just above the 200-day moving average after trimming gains.
Stock Market Action At Moving Averages
Some chart readers expressed concern that the S&P 500 faces potential resistance as it touches a trend line drawn across the highs going back to the January peak. The index is trying to move above that critical line today.
Keep in mind that prior inflation-related rallies have faded. The Nasdaq's 4.4% vault on Fed Chair Jerome Powell's comments on Nov. 30 evaporated just days later. And just one week ago, the S&P failed its most recent attempt to top the 200-day line.
On Wednesday, the Fed announces its next steps on monetary policy. With it comes the possibility of a surprise for investors.
Dow component Boeing rose 1% to the highest price since April. United Airlines agreed to buy 100 787 Dreamliner jets, a deal valued at $30 billion before discounts. United also took options on 100 additional 787s. United shares reversed 6% lower, slipping away from a 45.67 buy point.
Moderna soared more than 23% after a collaboration with Dow Jones component Merck produced positive trials on a vaccine for the recurrence of melanoma, when combined with a Merck cancer drug.
Moderna broke out of a cup-with-handle base and is now extended from the 188.75 buy point. Merck rose 0.6%.
