Wall St rises after CPI data but Fed concerns persist

  • Consumer prices increase moderately in November
  • Growth, real estate stocks rise as yields fall
  • Moderna leaps on optimistic trial data
  • Dow up 0.3%, S&P 500 up 0.73%, Nasdaq up 1.01%

NEW YORK, Dec 13 (Reuters) – U.S. stocks rose on Tuesday after an unexpected rise in consumer prices boosted optimism that the Federal Reserve could soon reverse its interest rate hikes to rein in the tide. inflation, but concerns remain that the central back could remain aggressive.

The benchmark S&P 500 index (.SPX) jumped 2.76% to a three-month high at the start of the trading session after news that U.S. consumer prices in November barely rose as gasoline and passenger cars used cars cost less, resulting in the smallest annual increase in inflation in nearly a year at 7.1%.

Growing expectations for lower and slower rate hikes from the Fed sent US Treasury yields down sharply and helped lift rate-sensitive indicators 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 recorded its biggest daily percentage gain in two weeks as the best performer of the 11 major sectors.

Fed funds futures prices implied an unparalleled chance that the Fed would follow an expected half-point rate hike this week, with smaller hikes of 25 basis points in its first two meetings of 2023. , and stopping at 5% by March .

Morgan Stanley’s chief U.S. economist Ellen Zentner now expects even smaller Fed rate hikes of 25 basis points at the central bank’s February meeting and no further increases in March, leaving the maximum federal funds rate at 4.625%.

Still, stocks pared gains ahead of the Fed’s policy statement on Wednesday, in which the central bank is expected to announce a 50 basis point rate hike.

“There was some excitement early on that the CPI number was again below expectations – this shows a sequential cooling – but once we saw that initial pop, equity 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 that tomorrow could very well be (Fed Chairman) 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 of the day as weaker-than-expected inflation data dragged the dollar lower and pushed crude oil prices higher.

The consumer inflation figures follow last week’s November producer price report, which was slightly higher than expected but indicated a moderating trend.

Still, some have wondered if the price trend could continue.

“The impression from today’s CPI is gradually good, but it needs to be sustained,” said Venu Krishna, head of US equity strategy at Barclays in New York.

“There’s a big question mark over whether we can really get to 2% inflation (the Fed’s target). Maybe we live in a world where it will be higher and that means that rates will be higher and multiples will certainly be lower.”

Moderna inc. (ARNM.O) jumped 19.63% after the biotech company’s experimental vaccine in combination with that of Merck & Co Inc (MRK.N) the flagship drug Keytruda showed promising results in a skin cancer study. Merck shares rose 1.78%.

Pinterest Inc. (PINS.N) jumped 11.90% after Piper Sandler took the social media platform’s shares from “overweight” to “neutral”.

Advancing issues outnumbered declining ones on the NYSE by a ratio of 2.83 to 1; on the Nasdaq, a ratio of 1.49 to 1 favored advancers.

The S&P 500 posted 18 new 52-week highs and 1 new low; the Nasdaq Composite recorded 92 new highs and 212 new lows.

Reporting by Chuck Mikolajczak, additional reporting by Carolina Mandl; Editing by Richard Chang

Our standards: The Thomson Reuters Trust Principles.

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