Stocks rise as inflation report keeps rate hikes on track
Wall Street capped a day of wobbly trading with modest gains for stocks Wednesday, as investors weighed the implications of the latest economic snapshot showing rising inflation.
The Standard & Poor’s 500 index rose 0.3% after veering between a loss of 0.1% and a gain of 0.8% over the course of the day. The Dow Jones industrial average eked out a 0.1% gain, while the Nasdaq composite rose 0.2%.
Investors were focused on a report from the Labor Department that showed consumer prices jumped 7% last month. That’s the fastest year-over-year pace in the consumer price index in nearly four decades. The sharp increase, which was in line with economists’ forecasts, came a day after Fed Chair Jerome H. Powell told Congress that the central bank stands ready to raise rates to fight inflation.
“That’s the next [thing] that investors are looking at, trying to figure out what the Fed is really, really going to do and what they really can do,” said Tom Martin, senior portfolio manager with Globalt Investments.
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The S&P 500 index rose 13.28 points to 4,726.35. It’s now about 1.5% below the all-time high it set early last week. The Dow advanced 38.30 points to 36,290.32. The Nasdaq rose 34.94 points to 15,188.39. The indexes are all on pace for weekly gains.
The modest advances were led by technology stocks, which have been choppy in recent days. The prospect of higher interest rates tends to make pricey sectors such as tech less appealing. Microsoft rose 1% and chipmaker Nvidia rose 0.7%.
A mix of retailers and other companies that rely on direct consumer spending, such as auto companies, also made solid gains. Nike rose 1.3%.
The healthcare sector was the only laggard among stocks in the S&P 500. Biogen slid 6.7% on news that Medicare is limiting coverage of the biopharmaceutical company’s $28,000-a-year Alzheimer’s drug, whose benefits have been widely questioned.
Smaller-company stocks lost ground. The Russell 2000 index fell 17.95 points, or 0.8%, to 2,176.06.
Bond yields were mostly stable. The yield on the 10-year Treasury fell to 1.73% from 1.74% late Tuesday.
The central bank is reducing bond purchases that helped keep interest rates low throughout the COVID-19 pandemic. Investors are watching to see just how soon the Fed will start raising interest rates to fight inflation.
“We’re in a period where I don’t think we’ve ever been before with the amount of stimulus that was put to work,” said Greg Marcus, managing director of UBS Private Wealth Management. “You can’t have that much of an increase without having inflation ticking up.”
The market now puts the chances of the Fed raising short-term rates by at least a quarter of a point in March at around 75%. A month ago, it was about 36%.
Wall Street will get another update on inflation Thursday, when the Labor Department releases December results from an index based on U.S. wholesale prices, which shows how inflation is affecting costs for businesses.
Businesses in a wide variety of industries have been passing higher costs on to consumers, but many have been warning that they will still feel a financial effect because of higher prices and supply chain problems. Medical products maker Cardinal Health was the latest to issue such a warning earlier this week.
Wall Street will be closely watching the latest round of earnings to see how companies are dealing with inflation. Several airlines and banks this week will be among the first big companies to report their latest financial results.
Delta Air Lines reports its results Thursday. Citigroup, JPMorgan Chase and Wells Fargo report results Friday.
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