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Stocks Rise as U.S. Inflation Meets Expectations: Markets Wrap

By Lu Wang and Jennifer Bissell-Linsk

U.S. stocks rose Friday after in-line inflation data spurred bets the Federal Reserve won’t have to accelerate plans to tighten monetary policy.

The S&P 500 gained 0.5% and Nasdaq 100 added 0.6% as the headline rate came in at 6.8%, as expected, which is the highest since 1982. Meanwhile, the yield on the U.S. 10-year Treasury fell to 1.45% as traders trimmed bets on the pace of Fed tightening.

A pedestrian wearing a protective mask is reflected in an electronic stock board outside a securities firm in Tokyo, Japan, on Monday, Jan. 4, 2021. Asian stocks climbed to a new record, as technology shares remained strong in the first session of 2021. Photographer: Noriko Hayashi/Bloomberg

Investors had been looking forward to the inflation report and a meeting of the Federal Reserve next week for clues on the pace of tapering and interest rate increases, after Chairman Jerome Powell said the central bank should consider withdrawing stimulus at a faster pace. 

Gold jumped while the dollar dipped 

The in-line reading “is good news, relative to fears going in. People thought it would be much worse,” said Dennis DeBusschere, founder of 22V Research. “It is still a high number to be sure, but should reduce some worries on the Fed having to crush growth.”

The report comes as uncertainty from the omicron virus variant has also been weighing on the market. The U.S. appears to be headed for a holiday crisis as virus cases and hospital admissions climb. Likewise, London firms have started telling thousands of staff to work from home. Still, U.S. consumer sentiment has been improving, with one gauge showing an increase in confidence from a decade-low in November.

“We believe the stock market will continue to rise as consumer spending remains strong and corporate profits — for now — are continuing to grow, but increased volatility is likely over the next 6-12 months as inflation, interest rates and Fed policy are all going to be shifting much more rapidly than they have in the past,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “The most important thing investors can do is to remain diversified and not lean too heavily into any one area.”

Below is additional commentary from market watchers:

  • “The inflation print from this morning will reinforce the Fed’s resolve to accelerate tapering. With the strength in the economic recovery, it is time to take the crutches away.” – Anu Gaggar, global investment strategist for Commonwealth Financial Network
  • “The knee jerk reaction is one of relief that CPI didn’t print the 7%-handle. But the data are still strong, particularly the trend in core CPI, so a faster Fed taper will likely result. Equities should therefore fail to hold these gains.” – Peter Chatwell, head of multi-asset strategy at Mizuho International
  • “Stocks are likely rallying because this is exactly what was priced in … The messaging is yes, this is hot, yes, we knew this — and that’s why the market is now able to move onto the next thing that it frets about and that’s the message that we get from the Fed.” – Art Hogan, chief markets strategist at National Securities
  • “The market doesn’t like uncertainty and this morning’s muted reaction or rally is likely the result of two things: (1) Thursday’s dip presented another buying opportunity, and (2) the news on inflation was fairly locked in and certain to be high, at or near that 6.7 expectation.” – Sylvia Jablonski, chief investment officer and co-founder at Defiance ETFs
  • “Many have felt the effects of inflation in their day-to-day, so this likely isn’t a huge shocker to the market … Though with all systems go on the labor market front, and inflation running white-hot, the Fed is likely feeling the pressure to act.” – Mike Loewengart, managing director of investment strategy at E*Trade Financial

Among company moves, Oracle Corp. shares surged after the software firm’s sales beat estimates, while Moderna Inc. tumbled after results from its experimental seasonal flu shot appeared similar to another vaccine on the market.

In Europe, Daimler AG’s trucks division gained in its first trading day as the storied German manufacturer completed a historic spinoff. 

Separately, China Evergrande Group Chairman Hui Ka Yan was forced to sell pledged shares in the company, according to disclosures that came a day after the developer was officially labeled a defaulter for the first time.

Bloomberg’s Markets Live team is running a survey on asset views for 2022. It’s anonymous, takes about 2 minutes, and the results will be shared in the latter part of December. To participate, click here.

For more market analysis, read our MLIV blog.

Stocks

  • The S&P 500 rose 0.5% as of 11:48 a.m. New York time
  • The Nasdaq 100 rose 0.6%
  • The Dow Jones Industrial Average rose 0.2%
  • The Stoxx Europe 600 fell 0.3%
  • The MSCI World index rose 0.1%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.2%
  • The euro rose 0.3% to $1.1322
  • The British pound rose 0.3% to $1.3267
  • The Japanese yen rose 0.2% to 113.29 per dollar

Bonds

  • The yield on 10-year Treasuries declined four basis points to 1.46%
  • Germany’s 10-year yield was little changed at -0.35%
  • Britain’s 10-year yield declined two basis points to 0.74%

Commodities

  • West Texas Intermediate crude rose 0.4% to $71.20 a barrel
  • Gold futures rose 0.6% to $1,787 an ounce

More stories like this are available on bloomberg.com.

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