U.S. stocks head for best day since January and could climb higher by end of day

See: Stock-market rally faces make-or-break moment. How to play U.S. October inflation data.

Historically, such extreme reactions to inflation data are fairly uncommon, according to a team of analysts at Bespoke Investment Group.

In a note shared with clients and MarketWatch on Tuesday, the Bespoke team showed that Tuesday’s move marks only the 17th time since 1998 that the SPDR S&P 500 ETF Trust
SPY,
an ETF commonly known by its ticker, SPY, has surged 1% or more on a CPI day.

The S&P 500
SPX
was up more than 2% late morning Tuesday, leaving it on track for its best daily gain since Jan. 6, according to FactSet data. But according to Bespoke, more gains could follow during the last hour of trading.

Many large asset managers, corporations and other institutions tend to execute their trades heading into the close, which is why traders pay such close attention to the final hour of the U.S. market day. According to Bespoke, strong gains earlier in the session on CPI days have typically preceded further gains heading into the close.

U.S. consumer prices didn’t rise last month, according to the headline CPI Index for October released ahead of the U.S. market open on Tuesday. Meanwhile, “core” prices, which strip out volatile food and energy prices, rose by 0.2%, slower than the 0.3% that economists had expected.

See: U.S. inflation flat in October thanks to cheaper gas, CPI shows prices not rising as fast.

The data helped cement expectations that the Federal Reserve is likely finished raising interest rates, while pushing up the timing of the first interest rate cut to as soon as March.

“The CPI data confirm what everyone already knew—inflation is on the decline in a meaningful way,” said Jamie Cox, managing partner for Harris Financial Group. 

“The question now for the Fed is whether they continue to believe that slowing the economy into recession is needed to completely conquer inflation. I certainly hope not.”