Stocks Head Up on New Inflation High. Investors See a Drop on the Way.
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Stocks were on the upswing Wednesday after a key inflation number showed not only highest year-over-year increase but signaled—to the delight of investors—that the rate could drop soon.
In midafternoon trading, the
Dow Jones Industrial Average
was down 42 points, or 0.1%. The
S&P 500
added 0.2%, and the tech-heavy
Nasdaq Composite
gained 0.2%.
The inflation gauge—the consumer-price index—rose 0.5% in December from a month earlier, and the year-over-year increase surged to 7%, the Labor Department reported. That annual gain is the fastest rate of inflation in the economy since mid-1982 and was in line with economists’ consensus forecast.
There’s a kernel of good news, though: Chances seem fairly high that inflation is near its peak.
One reason for the high number was easy consumer-price comparisons to December 2020, before the White House had signed off on another stimulus package and before Covid-19 vaccines were rolled out.
Another reason: Wednesday’s result was in line with expectations. Many had wondered if the rate would be above 8%, said John Kolovos, chief technical strategist at Macro Risk Advisors.
“The reason markets are stable is that we didn’t get a major blow off, an 8.5%,” as an example, Kolovos said.
Another force that could push inflation down: Supply in the global economy is beginning to catch up to demand, making products more available.
The prospect of slowing inflation means that, while markets expect the Federal Reserve to lift interest rates three times this year, the chances of more are slimmer. And that gives more room for higher economic growth.
The bond market, for one, is reflecting as much. The 2-year Treasury yield, which forecasts the number of rate hikes in the next couple of years, remains just below 0.91%, a level it has had trouble rising above in the past few trading sessions.
The 10-year Treasury yield is down to 1.72% from an intraday pandemic-era high of 1.81% hit Monday. That’s helping tech stocks gain, as those investors are banking on sizable profits many years down the line, making tech valuations particularly sensitive to changes in long-dated bond yields.
The market’s strength earlier in the day was building on the momentum of Tuesday’s rally, spurred by the remarks of Federal Reserve Chairman Jerome Powell at his renomination hearing. Powell didn’t indicate that the Fed would necessarily lift rates faster than currently expected.
On reason all three major U.S. indexes pulled back from their Wednesday highs — and they’re also below their all-time highs — is because markets are still far from certain on monetary policy.
The extent to which the Fed will tighten policy is uncertain. The first rate hike hasn’t even been implemented yet and it usually takes economic demand some time to change after several hikes. “There’s going to be a lag,” Kolovos said. “It’s this transition, this internal dialogue the market’s going to have on interest rates” for the moment.
Overseas, London’s
FTSE 100
rose 0.8%—capturing the highest levels seen since the Covid-19 crash of February 2020—while the pan-European Stoxx 600 index added 0.7%.
In Hong Kong, the
Hang Seng Index
surged 2.8%. News that China’s total social financing had increased while inflation in the world’s second-largest economy had come in slower than expected helped buoy Asian markets, according to 22V’s Dennis DeBusschere. “China total social financing has hooked up and a credit impulse will follow, which should support some China levered Industrials that lagged significantly last year. It keeps an upward bias to commodity price as well,” he explains.
In commodities, oil prices consolidated gains that came in tandem with Powell’s message Tuesday. Futures contracts for West Texas Intermediate crude rose 2% to above $82.
Cryptocurrencies were also higher.
Bitcoin
—the leading crypto—rose 4% over the last 24 hours, according to data from CoinDesk, trading just below $44,000. Smaller peer
Ether
was up almost 7% across the same period to above $3,350.
Here are six stocks on the move:
Biogen (BIIB) stock slumped 7.8% after the CMS said only people enrolled in trials should receive its Alzheimer’s drug. Shares of Eli Lilly (LLY), which is working on a similar drug, fell 3%.
DiDi Global
(DIDI) gained 1.5% on reports that it could list in Hong Kong during the second quarter of 2022.
Rocket Lab USA
(RKLB) stock jumped 5.6% after Morgan Stanley picked up coverage of the space launch startup with a Buy-equivalent rating.
Snowflake
(SNOW) stock added 1.7% after it was upgraded to the equivalent of Buy, from the equivalent of Hold, at Barclays. Shares of the software company have tumbled lately in the broaderchnology stock selloff.
Dish Network
(DISH) rose 3.3% after the New York Post reported that it is once again in talks about a merger with DirecTV, which is majority owned by
AT&T
(T). Years of such speculation have failed to result in a deal.
Write to Jack Denton at jack.denton@dowjones.com and Nicholas Jasinski at nicholas.jasinski@barrons.com
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