NASDAQ Composite Underpinned by Strong Semiconductor Subsector Performance

The major U.S. stock indexes opened sharply higher in reaction to a government report that showed U.S. producer prices (PPI) rose less than expected in October. This news provided supporting evidence of cooling inflation, boosting hopes of smaller future interest rate hikes by the Federal Reserve.

The Labor Department’s producer price index rose 8% in the 12 months through October, lower than an estimated 8.3% rise. Producer price had increased 8.5% in September.

At 14:37 GMT, the blue chip Dow Jones Industrial Average is trading 33937.95, up 401.25 or 1.20%. The benchmark S&P 500 Index is at 4024.94, up 67.69 or +1.71% and the tech-weighted NASDAQ Composite is trading 11464.51, up 268.29 or +2.40%.

The report follows softer-than-expected consumer prices data late last week that had sparked a massive equity rally on hopes that the Federal Reserve would tap down its aggressive stance that has roiled markets this year, according to Reuters.

Stocks Boosted as Treasury Yields Slip

Stocks are being supported by a drop in Treasury yields in response to the PPI data. The yield on the benchmark 10-year Treasury note fell about 10 basis points to 3.771%, its lowest level since the beginning of October. The 2-year Treasury yields was last about 8 basis points lower at 4.33%.

Berkshire Hathaway Buys Taiwan Semiconductor Stock

The broad-based NASDAQ Composite is getting an additional lift on Tuesday from a 2.84% jump in the Semiconductor Sub-Sector. Driving the semis higher is a stronger performance from Taiwan Semiconductor Manufacturing Company Limited shares.

Taiwan Semiconductor shares are up over 11% after Berkshire Hathaway disclosed in a Securities and Exchange Commission (SEC) filing that it had bought more than $4.1 billion of the chip maker’s stock during the third quarter.

Winners and Losers

Retailer earnings were in focus on Tuesday with Walmart raising its full-year net sales expectations and announcing a new $20 billion share buyback plan.

Shares of the top U.S. retailer jumped 7.4% in premarket trading, while Home Depot fell 1.3% as the home improvement chain left its annual forecasts unchanged despite topping quarterly results estimates.

Energizer Holdings, the maker of Energizer and Rayovac batteries saw its stock surge 10% in premarket action following better-than-expected quarterly results. Energizer’s results came despite what the company calls a volatile operating environment with significant headwinds.

Short-Term Outlook

The cooler CPI and PPI numbers have been enough to spark the stock indexes higher. In order to continue to move, however, investors are going to have to start factoring in the Fed’s exit strategy.

The inflation data suggests the Federal Reserve’s rate hikes may be coming to an end sooner than expected and at a much lower than initially forecast terminal rate. This is a bullish development.