Wall Street gains as inflation data supports Fed bets

A trader watches his chart while working on the floor of the New York Stock Exchange July 8, 2014. REUTERS/Brendan McDermid

Jan 12 (Reuters) – U.S. stock indexes rose on Wednesday after inflation data largely met high expectations, easing some fears that the Federal Reserve would pull back support, with megacap technology stocks offering the biggest boost.

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. read more

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’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. read more

By 2:23PM ET, the Dow Jones Industrial Average (.DJI) rose 7.95 points, or 0.02%, to 36,259.97, the S&P 500 (.SPX) gained 12.21 points, or 0.26%, to 4,725.28 and the Nasdaq Composite (.IXIC) added 59.02 points, or 0.39%, to 15,212.47.

Eight of the 11 major S&P 500 sector indexes rose, with materials (.SPLRCM), consumer discretionary (.SPLRCD) and technology (.SPLRCT) leading the percentage gains.

Growth and technology stocks, hit by rising Treasury yields and hawkish commentary from the Federal Reserve, have staged 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.

JPMorgan Chase & Co (JPM.N), Citigroup Inc (C.N) and Morgan Stanley (MS.N) will report their results on Friday, followed by Bank of America Corp (BAC.N) on Jan. 19. read more

“Earnings may exceed expectations and that is what is keeping investors active despite knowing that the Fed is going to start tightening in the next several months,” said Eric Schiffer, chief executive officer of California-based private equity firm Patriarch Organization.

“You’ll also see less commentary on earnings calls referencing supply chain constraints this season.”

In sectors like air travel, however, the onset of Omicron variant of the coronavirus could dampen earnings expectations, with analysts at Bank of America (BAC.N) reckoning that the pandemic’s impact on corporate travel is the biggest risk to the airline industry. read more

The healthcare index (.SPXHC), the S&P’s biggest percentage decliner, was weighed down by shares of drugmaker Eli Lilly (LLY.N), which fell 3.7%, and Biogen (BIIB.O), which dropped 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. read more

Advancing issues outnumbered declining ones on the NYSE by a 1.19-to-1 ratio; on Nasdaq, a 1.25-to-1 ratio favored decliners.

The S&P 500 posted 38 new 52-week highs and 1 new lows; the Nasdaq Composite recorded 54 new highs and 108 new lows.

Reporting by Bansari Mayur Kamdar, Shreyashi Sanyal and Anisha Sircar in Bengaluru, Sinéad Carew in New York; Editing by Maju Samuel and Aurora Ellis

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