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Wall St gains as CPI data calms jitters over aggressive rate hikes


Wall Street’s main indexes rose on Tuesday, led by rate-sensitive megacap stocks, after a smaller-than-expected rise in U.S. consumer prices raised hopes that the Federal Reserve could soften its aggressive stance on interest rate hikes.

The benchmark S&P 500 (.SPX) touched a three-month high in early trade after data showed U.S. consumer prices barely rose in November amid declines in the cost of gasoline and used cars, leading to the smallest annual increase in inflation in nearly a year.

Rising bets on a potential slowdown in the pace of Fed’s rate hikes drove the S&P 500 Growth index (.IGX) and the S&P 500 Real Estate index (.SPLRCR) index to their highest in more than two months.

Fed funds futures prices implied a better-than-even chance that the Fed will follow an expected half-point interest rate hike this week, with smaller 25-basis point rate hikes at its first two meetings of 2023, that would bring the policy rate to the 4.75%-5.00% range.

“The Fed is going to continue to keep rates high, but there is a possibility that they’re going to pause later next year,” said Josh Markman, partner at Bel Air Investment Advisors.

“They (markets) are looking past the recession that is expected in 2023 and are looking six months out, where they’re seeing inflation beginning to ease. You’re going to get a little Santa Claus rally.”

Strategists at Morgan Stanley expect the Fed to put a stop to the rate hike cycle in March, leaving the peak Fed funds rate at 4.625%.

The U.S. Labor Department’s report showed consumer prices increased by 7.1% on an annual basis in November, while the core rate, which excludes volatile food and energy prices, climbed 6.0%. Economists were expecting a 7.3% rise in headline CPI and a 6.1% rise in core rates.

The numbers follow November’s slightly higher-than-expected producer prices reading last week, which, however, pointed to a moderation in the trend.

The CBOE volatility index (.VIX), also known as Wall Street’s fear gauge, hit a one-week low of 21.46 points, reflecting easing investor anxiety.

At 11:46 a.m. ET, the Dow Jones Industrial Average (.DJI) was up 231.96 points, or 0.68%, at 34,237.00, the S&P 500 (.SPX) was up 55.72 points, or 1.40%, at 4,046.28, and the Nasdaq Composite (.IXIC) was up 221.88 points, or 1.99%, at 11,365.62.

Moderna Inc (MRNA.O) shot up 23.8% 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.

Pinterest Inc (PINS.N) jumped 11.9% after Piper Sandler upgraded the social media platform’s stock to “overweight” from “neutral”.

Advancing issues outnumbered decliners for a 5.16-to-1 ratio on the NYSE and a 2.21-to-1 ratio on the Nasdaq.

The S&P index recorded 18 new 52-week highs and one new low, while the Nasdaq recorded 74 new highs and 93 new lows.

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