Wall St rises after CPI data but Fed concerns persist

Dow up over 700 points right out the gate, but immediately started a steady decline to dip 100 in the red by 1 pm, then steadily rose to a hundred point gain by close. The initial boom resulted from the CPI report which, though not reaching the hoped-for “6-handle,” nonetheless came in favorably lower than expectations and, at 7.1% (vs 7.3%), came awfully close to the 6% range. But it didn’t last long before investors decided that the excitement was premature and could be easily negated by Wednesday’s rate hike announcement so the selling started again.  

The hopes now are that not only will December’s hike be only ½ point but that it will be followed by mere ¼ point hikes in January and February with hikes ending in March. But skepticism remains that the Fed can reach that goal.  No volume data reported below but, per the CBOE, 13.8 billion shares were traded, which is way above the 4-week average.   

Tue  December 13, 2022  4:59 PM

Wall St rises after CPI data but Fed concerns persist

By Chuck Mikolajczak

DJ: 34,005.04  +528.58         NAS: 11,143.74  +139.12        S&P: 3,990.56  +56.18     12/12

DJ: 34,108.64  +103.60         NAS: 11,256.81  +113.08        S&P: 4,019.65  +29.09     12/13

NEW YORK, Dec 13 (Reuters) - U.S. stocks rose on Tuesday after an unexpectedly small consumer price increase buoyed optimism that the Federal Reserve could soon dial back its inflation-taming interest rate hikes, but concerns remained the central back could stay aggressive.  The benchmark S&P 500 (.SPX) jumped as much as 2.76% to a three-month high early in the trading session on news that November U.S. consumer prices barely rose as gasoline and used cars cost less, leading to the smallest annual inflation increase in nearly a year at 7.1%.  Rising expectations for smaller and slower Fed rate hikes sent U.S. Treasury yields sharply lower and helped lift rate-sensitive gauges like the S&P 500 growth index (.IGX), up 1.18%, and the S&P 500 real estate index (.SPLRCR) up 2.04% to their highest intraday levels in nearly three months. The real estate sector notched its biggest daily percentage gain in two weeks as the best performing of the 11 major sectors.

Fed funds futures prices implied a better-than-even chance that the Fed will follow an expected half-point rate hike this week, with smaller 25-basis point hikes at its first two meetings of 2023, and stopping shy of 5% by March.  Morgan Stanley's chief U.S. economist Ellen Zentner now sees even smaller Fed rate hikes, of 25 basis points at the central bank's February meeting, and no further increases in March, leaving the peak fed funds rate at 4.625%.

Still, equities pared gains ahead of the Fed's policy statement on Wednesday, in which the central bank is widely expected to announce a 50 basis point rate hike.  "There was some excitement early on that the CPI number was once again below expectations - it shows some sequential cooling - but once we saw that initial pop, stock investors kind of reassessed," said Jason Ware, chief investment officer at Albion Financial Group in Salt Lake City, Utah.  "That probably took some of the steam out of the markets once investors realized tomorrow very well may be (Fed Chair) Jerome Powell throwing cold water on the rally today."

The Dow Jones Industrial Average (.DJI) rose 103.6 points, or 0.3%, to 34,108.64, the S&P 500 (.SPX) gained 29.09 points, or 0.73%, to 4,019.65 and the Nasdaq Composite (.IXIC) added 113.08 points, or 1.01%, to 11,256.81.  Energy (.SPNY), up 1.77%, was among the best performing S&P sectors on the day as the softer-than-anticipated inflation data sent the dollar lower and boosted crude oil prices.

The consumer inflation numbers follow November's producer prices report last week, which was slightly higher than expected but pointed to a moderation in the trend.  Still, some questioned whether the trend in prices could continue.  "Today's CPI print is incrementally good, but it needs to be sustained," said Venu Krishna, head of U.S. equity strategy at Barclays in New York.  "There is a big question mark whether we can really come to the 2% inflation (Fed target). Perhaps we live in a world in which it will be higher and that means rates will be higher and then multiples will certainly be lower."

Moderna Inc (MRNA.O) surged 19.63% after the biotechnology firm's experimental vaccine in combination with Merck & Co Inc's (MRK.N) blockbuster drug Keytruda showed promising results in a skin cancer study. Merck shares advanced 1.78%.  Pinterest Inc (PINS.N) jumped 11.90% after Piper Sandler upgraded the social media platform's stock to "overweight" from "neutral."

Advancing issues outnumbered declining ones on the NYSE by a 2.83-to-1 ratio; on Nasdaq, a 1.49-to-1 ratio favored advancers.  The S&P 500 posted 18 new 52-week highs and 1 new lows; the Nasdaq Composite recorded 92 new highs and 212 new lows.