The Dow gets a big boost

(CNN) — Investors got some much-needed R&R over the weekend, apparently, because they came back to work Monday with smiles on their faces and a brighter outlook about the US economy.

The Dow rose 484 points, or 1.2%, on Monday. The broader S&P 500 rose 1.2% and tech-heavy Nasdaq was also 1.2% higher. At one point earlier in the afternoon, the Dow was up more than 600 points.

That’s in stark contrast to the mood from last week, when investors punished stocks in the lead-up to what Wall Street predicted would be a less-than-thrilling jobs report. On Friday, investors got what they expected: a fine, but not great look at the labor market that showed America’s job market is growing but not at the electric pace of past years.

Fear took hold on Wall Street last week, and though that remained the predominant sentiment Monday, CNN Business’ Fear and Greed Index ticked higher, near “neutral” sentiment.

This week, investors will get another look at US inflation data, starting Wednesday morning with the Consumer Price Index report. That’s expected to show that inflation slowed dramatically in August — another sign that the Federal Reserve’s battle against inflation is paying off.

The Fed has kept interest rates high to bring price hikes under control. But there’s an (intended) consequence to rate hikes: They slow the economy down. Rate hikes increase the costs of doing business and hurt profitability. That tends to slow down hiring, which means fewer jobs and less money for consumers to spend. Because consumer spending makes up the vast majority of America’s economy, the Fed almost always plunges the economy into a recession when it hikes rates — although that’s obviously not the goal.

The fact that America is not in a recession after years of high rates is nothing short of extraordinary. Until recently, hiring kept on booming and consumers kept on spending — largely because pandemic-era stimulus hadn’t quite worn off yet and because many homeowners locked in ultra-low mortgage rates that freed up cash.

That may be part of what investors are reacting to Monday: Yes, the job market is showing signs of stress, but the recent selloff could be overdone.

The fact that the economy is still gaining jobs at a healthy clip is exactly the “soft landing” scenario many were hoping for (and doubting could be achieved) when the Fed started jacking up rates a couple years ago.

It’s too early to declare victory, but it sure looks like this is a best-case scenario, considering where we were a couple years back.

The-CNN-Wire
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