Business

Stocks Close Higher as Inflation Picks Up

US inflation hit its fastest pace since 1982, but stocks on Wednesday took the news a big step.

The hot pace of inflation was broadly in line with expectations, and major US stock indexes ended the day higher.

The S&P 500 rose 13.28 points, or 0.3%, to 4726.35, down 1.5% from its record high last week. The Dow Jones Industrial Average added 38.30 points, or 0.1%, to 36,290.32. The technology-heavy Nasdaq Composite Index rose 34.94 points, or 0.2%, to 15,188.39.

Markets focused on anything that could change the outlook for the Federal Reserve to start raising interest rates as soon as possible in March. Federal Reserve Chairman Jerome Powell on Tuesday called high inflation a “serious threat” to a full economic recovery and said the central bank was preparing to raise interest rates because the economy no longer needed emergency support.

Investors on Wednesday examined data showing that the Consumer Price Index – which measures what consumers pay for goods and services – rose 7% in December from the same month a year earlier, up from 6.8% in November. That represented the fastest pace in nearly 40 years and the third consecutive month that inflation exceeded 6%.

The markets do not appear to be nervous.

“I think the markets are thinking inflation is on the cusp of peaking,” said Daryl Kronk, chief investment officer for Wealth and Investment Management at Wells Fargo.

Luca Paolini, chief strategist at Pictet Asset Management, said he expects inflation to peak this quarter, but is waiting to see if higher inflation impacts earnings in the upcoming earnings season.

At a hearing to confirm his second term as Federal Reserve chair, Jerome Powell said the central bank will use its tools to curb inflation. Photo: Graeme Jennings/Press Pool

Trading has been choppy this week after a tough start to 2022 that saw Treasury yields jump and tech stocks plunge. Investors learned last week that the central bank may raise interest rates sooner than previously expected.

When interest rates are low, investors tend to load up risky assets such as stocks to generate returns. When inflation accelerates and policy makers raise rates, the value of future corporate profits declines and investors have more alternatives where to make money. This particularly hurts technology stocks that promise to expand future earnings. The Nasdaq Composite is down 2.9% so far in 2022, while the S&P 500 is down 0.8%.

Investors are watching closely as the central bank prepares to raise interest rates and reduce its asset holdings. Federal Reserve officials approved plans in December to scale back or reduce their asset purchases faster, a form of economic stimulus.

“I think the market is well-prepared at this point for a dip and an increase in prices,” said Maes McCain, president and chief investment officer at Frost Investment Advisors. “They are once again able to look forward to a solid earnings season.”

Analysts expect corporate earnings in the S&P 500 to rise 22% in the last quarter of the previous year, according to FactSet. Delta Air Lines is expected to release a report on Thursday, while JPMorgan Chase, Wells Fargo and Citigroup are expected to release a report on Friday.

Ten of the 11 sectors of the S&P 500 advanced on Wednesday. Only the health care group refused.

Among the individual stocks, Biogen shares fell $16.18, or 6.7%, to $225.34 after Medicare officials said they would cover the Alzheimer’s drug Aduhelm on condition that patients are in clinical trials and have early-stage symptoms.

Shares of Jefferies Financial Group fell $3.84, or 9.3%, to $37.59 after the company reported lower-than-expected earnings and revenue for the fourth quarter. Jefferies said it was affected by challenging market conditions for fixed income trading.

The yield on the 10-year US Treasury fell to 1.724% on Wednesday from 1.745% on Tuesday. Yields decrease as bond prices rise.

Traders at the New York Stock Exchange on Tuesday.


Photo:

Spencer Platt / Getty Images

Offshore, the Stoxx Europe 600 continental index was up 0.6%.

Hong Kong-listed Chinese technology stocks such as JD.com and Meituan jumped Wednesday. Analysts and investors said there was no clear catalyst. Hong Kong’s Hang Seng Index is up 2.8% and China’s Shanghai Composite Index is up 0.8%.

Japan’s Nikkei 225 and South Korea’s Kospi rose 1.9% and 1.5%, respectively.

Write to Karen Langley at karen.langley@wsj.com and Caitlin Ostroff at caitlin.ostroff@wsj.com

Copyright © 2022 Dow Jones & Company, Inc. all rights are save. 87990cbe856818d5eddac44c7b1cdeb8

It appeared on January 13, 2022, print edition as “Stocks Gain After High Inflation Data”.

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