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Wall Street closes higher as inflation data supports Fed bets

EconomyJan 12, 2022 06:25PM ET
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2/2 © Reuters. FILE PHOTO: A trader watches his chart while working on the floor of the New York Stock Exchange July 8, 2014. REUTERS/Brendan McDermid 2/2

By Bansari Mayur Kamdar, Shreyashi Sanyal and Sinéad Carew

(Reuters) - U.S. stock indexes rose on Wednesday after data showed that while U.S. inflation was at its highest in decades, it largely met economists' expectations, cooling some fears that the Federal Reserve would have to pull back support even more forcibly than already expected.

Ten out of the 11 major S&P sectors finished higher after the news with the S&P 500 and the Nasdaq outperforming the Dow as growth stocks outperformed value.

Data from the Labor Department showed the consumer price index (CPI) increased 0.5% last month after rising 0.8% in November, while in the 12 months through December, the CPI surged 7.0% to its highest year-on-year rise in nearly four decades.

Economists polled by Reuters had forecast a CPI gain of 0.4% for December and 7.0% on a year-on-year basis.

"Investors were bracing for even hotter in inflation than what we actually saw. As bad as the number is and as much inflationary pressure that's in the economy there was a little relief in that," said Anthony Saglimbene, Ameriprise Financial (NYSE:AMP)'s global market strategist in Troy, Michigan.

"Today's inflation report validates the Fed trajectory and means they don't have to be any more aggressive than is already priced in."

The central bank's plan for easing accommodation to fight inflation includes raising interest rates, which analysts expect to start as soon as March, as well as tapering its bond buying program and reducing its asset holdings.

For most stock sectors it also helped that longer-dated U.S. Treasury yields dipped on Wednesday. In recent weeks, sharp gains in the U.S. 10-year yield had weighed on stocks, particularly in rate-sensitive growth sectors like technology.

"The fact that bond market yields are standing down is probably a signal for equity investors to take on a little more risk today," said Jack Ablin, chief investment officer at Cresset Capital Management in Chicago.

But with the small cap Russell 2000 index underperforming to end down 0.82%, Ablin saw some caution.

"Equity investors still want quality. It's not a free-for-all," Ablin said.

The Dow Jones Industrial Average rose 38.3 points, or 0.11%, to 36,290.32, the S&P 500 gained 13.28 points, or 0.28%, to 4,726.35 and the Nasdaq Composite added 34.94 points, or 0.23%, to 15,188.39.

The S&P's top sector gainers of the day were materials, up almost 1%, consumer discretionary, up 0.6% and technology which rose 0.4%.

Growth and technology stocks have been staging a comeback this week, with investors watching a variety of metrics to decide whether to buy the rally or brace for more declines.

Also on the watchlist for this week is the unofficial kick-off of the fourth quarter earnings season with JPMorgan Chase & Co (NYSE:JPM), Citigroup Inc (NYSE:C) and Morgan Stanley (NYSE:MS) due to report their results on Friday.

The Dow's biggest drag for the day was Goldman Sachs (NYSE:GS), which fell 3% and Morgan Stanley fell 2.7% on the day as their smaller rival Jefferies fell 9% after it missed quarterly earnings expectations.

Both Goldman and Morgan Stanley, like Jefferies depend heavily on their capital markets business. Both Morgan Stanley and Goldman were also in the top five biggest drags on the S&P 500 on the day. However, the broader banking sector, which includes more traditional lenders, rose 0.3% on Wednesday.

In sectors like air travel, however, surging cases of the Omicron variant of the coronavirus could dampen earnings expectations, with analysts at Bank of America (NYSE:BAC) reckoning that the pandemic's impact on corporate travel is the biggest risk to the airline industry.

The healthcare index, was weighed down by shares of drugmaker Eli Lilly (NYSE:LLY), which closed down 2.4% and was the biggest single weight on the S&P, and Biogen (NASDAQ:BIIB), which lost 6.7%.

The U.S. government Medicare program said that while it plans to cover Biogen's Aduhelm Alzheimer treatment it will require patients to be enrolled in a clinical trial, limiting access to the medication. This could also impact Eli Lilly, which is developing similar drugs.

The biggest boosts to the S&P on the day were Tesla (NASDAQ:TSLA) up 3.9% ahead of Microsoft (NASDAQ:MSFT) Google parent Alphabet (NASDAQ:GOOGL), which both rose more than 1%.

Advancing issues outnumbered declining ones on the NYSE by a 1.26-to-1 ratio; on Nasdaq, a 1.37-to-1 ratio favored decliners.

The S&P 500 posted 38 new 52-week highs and 1 new lows; the Nasdaq Composite recorded 60 new highs and 137 new lows.

On U.S. exchanges 10.251 billion shares changed hands compared with the 10.496 billion average for the last 20 sessions.

Wall Street closes higher as inflation data supports Fed bets
 

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Comments (40)
Steven Des
Steven Des Jan 13, 2022 7:20AM ET
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it like saying ; my house is on fire, but it's winter so it's nice and hot. Let it burn...
Unoqueva Alguno
Unoqueva Alguno Jan 13, 2022 4:19AM ET
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the fed put and the fed bets, welcome to the fed casino!
Fong SH
Fong SH Jan 12, 2022 9:07PM ET
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You don't call this closes higher - this is inch up - lol Closes Higher means like at least a hundred points up, but when  you are struggling to maintain that border line of safety, you call that - inch up -. lol
Luis Bustamante
Luis Bustamante Jan 12, 2022 7:15PM ET
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I believe this is the craziest moment in the US Stock Market history and the country in general terms.It is just hard to maintain composure reading or listening to finantial news and institutions. This time they are playing with fire, they are playing with citizens welfare whose incomes are shrinking as inflation advance mercilessly. A serious central bank would have never allowed inflation to run this high to the detriment of main street and openly favoring the rich. Your time have come Mr. Powel to do what is correct. Act n behalf of your country for God sake.
reza karimi
reza karimi Jan 12, 2022 4:54PM ET
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inflation data supports fed bet are u joking?
Tom Sc
Tom Sc Jan 12, 2022 3:08PM ET
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inflation is way under reported anyway. I work in food and we buy direct from manufacturers and generally speaking our costs went up 15% last year, at least. add min wage effectively going up 10 to 15%, rents went up 10%, energy up a ton etc etc. how they come to 7%... I mean, what exactly dropped in price to cancel out any of the gains?
Peter ONeill
Peter ONeill Jan 12, 2022 3:03PM ET
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Inflation supports Fed bets? HAHAHAHA ....Is this the same fed who was saying in 2020 that inflation would be falling by the start of Q3 2021? So the fed is betting on inflation at 40 years highs?????? Lets ignore the fact inflation would have been about 0.4% higher if oil/gas prices hadn't fallen at the end of Nov due to Covid concerns (Now already back at $85 a barrel - so good luck with January's inflation numbers). The market is a bubble all built on Fed printing press cash (you know the stuff Powell hopes you ignore as he only wants to blame supply bottlenecks - ignore the $7 - $8 Trillion he has printed in the past 18 months as that emmm that would have no impact at all??)
Stan Smith
Stan Smith Jan 12, 2022 2:40PM ET
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Interest rates can't rise either: " In short, the Fed has no tools to add drag without a catastrophic reduction in output. And so inflation is a freight train hurling down an endless abyss with no brakes. " I don't see why investors can't see this...The FED can't fix it!
Fong SH
Fong SH Jan 12, 2022 2:40PM ET
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Stan - the stock market is not for the FED to say anything, it's for the elite rich to say & decide how to fix the markets. it's been like this all these years since AG's time till now. Try to digest and get use to it. Invest with caution. Cheers
Ricardo Diogo
Rcd72 Jan 12, 2022 2:39PM ET
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the title is not only ridiculous but is even able to be offensive to 99.8% people that not only is losing but that will pay for the silly FED purchases and massive new debt!
Mitchel Pioneer
Mitchel Pioneer Jan 12, 2022 2:23PM ET
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And 2PM sharp, the "buyers" come out of the woodwork.  The desire to keep the fraud covert is completely gone.  Pure, flagrant manipulation in broad daylight, as Wall Street averages up holdings in retirement plans, and laughs in the face of America.
 
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