Stock Market Rally Enters Power Trend as Inflation Cools; EV and Lithium Plays Flash Buy Signals

The stock market surged Wednesday on a single piece of news: inflation had cooled more sharply than anyone expected. The consumer price index came in flat compared to June, and when you stripped out food and energy costs, prices rose just 0.3%—both figures below what economists had forecast. Headline inflation, which had hit a 40-year peak of 9.1% in June, fell to 8.5%. Core inflation held steady at 5.9% instead of ticking higher as many had anticipated. The market's response was immediate and broad. The Dow Jones Industrial Average climbed 1.6%. The S&P 500 jumped 2.1%. The Nasdaq composite leapt 2.9%, as did the small-cap Russell 2000. By day's end, market analysts were using a specific term to describe what had happened: the rally had entered a "power trend," a technical signal suggesting the upswing had shifted into a more durable, bullish phase.

Within that broader surge, certain corners of the market flashed what traders call buy signals. Lithium stocks were among the most conspicuous movers. Albemarle, one of the world's largest lithium producers, jumped 6% to 259.30 after clearing a buy point from its chart pattern. The company had just reported earnings that easily beat expectations, with earnings per share up 288% and revenue up 91%. More striking still, Albemarle had doubled its full-year earnings guidance—the third major forecast increase in roughly three months. The company attributed the strength to high lithium prices and its ability to convert more of its contracts to spot pricing, locking in those elevated rates. Sociedad Quimica y Minera de Chile, another lithium giant, rose 3.8% to 101.12, clearing an early entry point. Livent, the third major player in the space, jumped 6.7% to 28.20 after also posting earnings that vastly exceeded forecasts, with earnings per share up 825% and revenue up 114%—the seventh consecutive quarter of accelerating revenue growth. The Global X Lithium & Battery Tech ETF, which holds these companies as major positions alongside Tesla, BYD, and various Asian battery makers, climbed 2.35% and moved above its 200-day moving average for the first time since late January.

Tesla itself rose 3.9% to 883.07, though the company had been under some pressure earlier in the week. Elon Musk had disclosed that he sold $6.9 billion worth of Tesla stock on August 5, 8, and 9, citing the potential Twitter acquisition as the reason for the sales. He stated he was finished selling Tesla shares for now. Twitter stock itself popped 3.7% to 44.43, continuing a strong uptrend over the past month. Legal experts assessed that Twitter had a strong case in forcing Musk to complete the acquisition at the agreed price of $54.20 per share. On the Tesla product front, Musk tweeted that the long-delayed Tesla Semi would launch later in 2022 with a 500-mile range. A separate report indicated that BYD would supply batteries to Tesla's Berlin factory, with some Model Ys equipped with BYD's Blade batteries potentially rolling off the line that month. BYD stock itself edged down 0.5% after hitting a two-month intraday low, though shares remained modestly below a rising 50-day moving average.

Beyond the lithium and EV space, other sectors participated in the rally. Disney reported better-than-expected earnings after market close, with Disney+ subscriber numbers significantly exceeding forecasts. The company announced plans to raise Disney+ subscription fees to $10.99 per month while introducing a lower-priced, ad-supported tier. Disney stock gained 5% in after-hours trading and rose 4% during the regular session to 112.43, marking a three-month high. Chip stocks bounced after recent warnings from Nvidia and Micron, with semiconductor ETFs like the VanEck Vectors Semiconductor ETF jumping over 4%. Steel, metals, medical device makers, and heavy construction firms were also shaping up with potential buy signals. Energy plays, particularly natural gas-focused names like Cheniere Energy, were flashing buy signals as well. U.S. crude oil prices rose 1.6% to $91.93 a barrel on data suggesting rebounding gasoline demand, while gasoline futures popped 3.7% and natural gas futures leapt 4.7%.

The inflation report's impact on market expectations for Federal Reserve policy was substantial. Markets were now pricing in a 58.5% probability of a 50-basis-point rate hike at the Fed's September 21 meeting, down from the 68% odds assigned to a third consecutive 75-basis-point increase just the day before. The 10-year Treasury yield edged down 1 basis point to 2.79%, while the two-year yield sank 6 basis points to 3.23%. The yield curve remained inverted from the one-year to the ten-year, a signal that has historically preceded recessions, though the inversion had become less severe.

Market strategists noted that the rally's entry into a power trend was a positive signal for investors. The major indexes, after initially hitting resistance at key levels earlier in the week, had recovered to or above those levels. The next significant resistance point would be the 200-day moving average for the major indexes. Analysts suggested that investors should consider increasing their exposure to equities, though not by deploying capital all at once. The advice was to build watchlists and monitor leading stocks and sectors, as many interesting names were in the process of forming the kinds of chart patterns that precede significant moves. The market's direction, however, remained dependent on future economic data and Fed communications, with jobless claims data scheduled for release Thursday morning at 8:30 a.m. ET.