Wall St rises after CPI data, but Fed concerns persist

  • Consumer prices rose moderately in November
  • Growth, real estate stocks rise while yields fall
  • Moderna rises on upbeat survey 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 unexpectedly small increase in consumer prices supported optimism that the Federal Reserve may soon reverse its inflation-taming interest rate hikes, but concerns remained that the central reserve could to remain aggressive.

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

Growing expectations of smaller and slower rate hikes from the Fed sent U.S. Treasury yields sharply lower and helped lift interest-sensitive benchmarks such as the S&P 500 (.IGX)up 1.18%, and the S&P 500 real estate index (.SPLRCR) up 2.04% to its highest intraday levels in nearly three months. The real estate sector posted its biggest daily percentage gain in two weeks as the best performer of the 11 major sectors.

Fed funds futures implied prices more than even a chance the Fed will follow through with an expected half-point interest rate hike this week, with smaller 25-basis-point hikes at its first two meetings since 2023 and a timid stop at 5% until March.

Morgan Stanley’s chief US economist Ellen Zentner now sees even smaller Fed rate hikes of 25 basis points at the central bank’s February meeting and no further hikes in March, leaving the Fed’s peak 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 interest rate hike.

“There was some excitement early on that the CPI was again below expectations — that shows some sequential cooling — but once we saw that initial spike, 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 after investors realized that tomorrow maybe (Fed Chairman) Jerome Powell will throw cold water on today’s rally.”

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 day’s best-performing S&P sectors as softer-than-expected inflation data sent dollar lower and reinforced crude oil prices.

Consumer inflation data followed November producer prices report last week that was slightly higher than expected but pointed to a moderation in the trend.

Still, some question whether the price trend can continue.

“Today’s CPI is incrementally good, but it needs to be sustained,” said Venu Krishna, head of U.S. 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). We may be living in a world where it will be higher and that means interest rates will be higher, and then the odds will certainly be lower.”

modern inc (MRNA.O) jumped 19.63% after that of the biotech firm experimental vaccine in combination with Merck & Co Inc (MRK.N) the blockbuster 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 upgraded shares of the social media platform to “overweight” from “neutral.”

Advancers outnumber decliners on the NYSE by a ratio of 2.83 to 1; on the Nasdaq, a ratio of 1.49 to 1 favors the advancers.

S&P 500 posts 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 Mandel; Editing by Richard Chang

Our standards: Thomson Reuters Trust Principles.

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