Dow clambers 230 points higher as Wall Street dispels inflation jitters - http://earlyretireonline.com | how to earn money fastFebruary 14, 2018 8:04 pm
Categorised in: Breaking Financial News
U.S. stock gauges rallied to session highs on Wednesday, marking a reversal of opening losses following a key reading of inflation that showed the strongest monthly rise in five months. That inflation measure spooked investors anxious that the Federal Reserve may be compelled to aggressively to tamp down rising prices by hiking rates a rapid clip in 2018.
However, some market participants characterized the initial tumble in stocks as knee-jerk in nature, as investors redshifted to fundamentals, including healthy earnings and an economy that appears to be relatively solid.
What are the main benchmarks doing?
The Dow Jones Industrial Average DJIA, +1.02% added 250 points, or 1%, to 24,886. The blue-chip average’s moves were powered by gains in Goldman Sachs Group Inc. GS, +2.44% J.P. Morgan Chase & Co. JPM, +2.14% which were scoring a lift from rising rates, which are a boon to a bank’s business model.
The S&P 500 index SPX, +1.29% was up by rallied 36 points, or 1.4%, to 2,698, with seven of its 11 main sectors trading higher, led by financials and consumer-discretionary shares, both up at least by 1.4%.
The Nasdaq Composite Index COMP, +1.78% meanwhile, enjoy the session’s best climb among the main equity gauges, up 131 points, or 1.9%, at 7,144.
Also notable, the small-cap focused Russell 2000 index RUT, +1.88% which has mostly left out of the multisession recovery in the three main indexes, was up 1.7% at 1,520, on track for its best daily advance in a month.
What’s driving markets?
Inflation scares that were responsible for the stock-market tumble over the past few weeks made a brief appearance on Wednesday with the release of consumer-price index data. But the main equity gauges recovered from the initial shock to trade higher.
The cost of rent, clothes, gasoline, health care and auto insurance all rose, contributing to the 0.5% jump in the consumer-price index. Core inflation, which strips out volatile food and energy prices, rose by 0.3%.
Analysts said stronger inflation data may force the Federal Reserve to be more aggressive in tightening policy.
Despite the inflation rise, the overall picture hasn’t changed much, market participants said. The year-over-year increase in the CPI was unchanged from December at 2.1%. The 12-month rate of core inflation was also flat at 1.8%.
The moves for equities came as a gauge of volatility on Wall Street retreated below its historic average at 20. The CBOE Volatility Index VIX, -22.71% which reflects bullish and bearish options contracts on the S&P 500 and typically moves inversely to stocks, sank 22% to 19.38. Volatility has been resurgent amid concerns about rising yields and inflation.
What are strategists saying?
“What’s different about the moves today than what we’ve seen over the last two weeks is that we have broken the correlation between the yield of 10-year and the stock market,” said Art Hogan, chief market strategist, at regional broker B. Riley FBR, referring to the market’s tendency to lose altitude as yields rose, reflecting climbing borrowing costs for corporations.
“Anything with inflation seems like a hot button nowadays, but it is a bit of a red herring here: higher inflation and higher rates are symptoms of economic health. And while inflation is rising it’s still below trend,” said Karyn Cavanaugh, senior market strategist at Voya Financial.
“At this point it’s not inflation but reflation and the Fed will not pull the trigger that fast,” said Cavanaugh.
Initial investor reaction to the data suggest that people are worried of aggressive move by the policy makers.
The Fed’s hand “may be forced if data on inflation continues to come in higher than expected. The added risk is that the FOMC in 2018 is not the same as the FOMC in 2017, we have a lot more hawks in the committee,” said Kristina Hooper, chief global market strategist at Invesco.
What other data are in focus?
Meanwhile, instead of a forecast rise, sales at U.S. retailers fell by 0.3% in January—the biggest drop in almost a year—largely because of declines at auto dealers and home centers. And a previously reported increase in sales in December was wiped out.
In other data, business inventories in the U.S. rose 0.4% in December after a similar gain in the prior month.
Which stocks look like key movers?
Chipotle Mexican Grill Inc.’s shares CMG, +15.15% rallied 16% after the burrito chain late Tuesday named a new CEO: Brian Niccol, previously the CEO for Yum Brands Inc.’s YUM, +0.62% Taco Bell business.
In earnings news, Hilton Worldwide Holdings Inc. HLT, +3.35% beat profit forecasts, sending shares 4% higher.
Molson Coors Brewing Co. TAP, +6.17% shares rose 5.3% after better-than-expected earnings results.
Netflix Inc. NFLX, +4.10% shares jumped about 3.8% after the New York Times reported that the company has lured one of Hollywood’s top TV hitmakers, producer Ryan Murphy, in a deal worth as much as $300 million.
What are other assets doing?
Gold futures GCG8, +1.92% settled firmly higher, up 0.8% at $1,326.40 an ounce, oil futures CLH8, +2.69% rebounded from an early decline, and the ICE U.S. Dollar Index DXY, -0.75% erased inflation-fueled gains to trade 0.2% lower at 89.536.
The yield on the 10-year Treasury note TMUBMUSD10Y, +3.12% rose 5 basis points to 2.90%, marking a fresh four-year high.
—Victor Reklaitis contributed to this article