Stocks Close Higher as Inflation Picks Up

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US inflation hits fastest pace in four decades

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The market is focused on anything that could change expectations for the Federal Reserve to start raising interest rates as soon as March. Fed Chairman Jerome Powell on Tuesday called high inflation a “serious threat” to a full economic recovery and said the central bank was preparing to raise interest rates as the economy no longer needed emergency aid.

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Investors examined data on Wednesday showing the consumer-price index – which measures what consumers pay for goods and services – rose 7% in December from the same month a year ago, up from 6.8% in November. This is the fastest pace in nearly 40 years and it is the third consecutive month that inflation has exceeded 6%.

There was no movement in the market.

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“I think the markets are believing that inflation is peaking,” said Darrell Cronk, chief investment officer for wealth and investment management at Wells Fargo.

Luca Paolini, chief strategist at Pictet Asset Management, said he expects inflation to peak this quarter, but is waiting to see if the benefits of higher inflation in the coming earnings season weigh on profits. .

Trading has turned choppy this week after a rocky start to 2022, which saw a jump in Treasury yields and a drop in tech stocks. Investors learned last week that the central bank may hike rates sooner than previously thought.

When interest rates are low, investors put weights on riskier assets like stocks to generate returns. When inflation intensifies and policymakers raise rates, the value of companies’ future earnings falls and investors have more options to make money. This particularly hurts technology stocks that promise to expand future profits. The Nasdaq Composite is down 2.9% so far in 2022, while the S&P 500 is down 0.8%.

Investors are watching closely as the central bank prepares to raise rates and reduce its asset holdings. Fed officials in December approved plans to more quickly scale back, or purchase their assets, a form of economic stimulus.

“I think the market is well prepared for a downtrend and rate hike at this point in time,” said Mace McCain, president and chief investment officer at Frost Investment Advisors. “They are once again able to see what a strong earnings season is going to be.”

According to FactSet, analysts expect the profits of companies in the S&P 500 to rise 22% over the fourth quarter from a year ago. Delta Air Lines is expected to report on Thursday, while JPMorgan Chase, Wells Fargo and Citigroup are expected to report on Friday.

Ten of the S&P 500’s 11 sectors advanced on Wednesday. Only the healthcare group declined.

Among individual stocks, Biogen’s shares fell $16.18, or 6.7%, to $225.34 after Medicare officials said they would cover the Alzheimer’s drug Eduhelm on the condition that patients were in clinical trials and early stages. had symptoms.

Shares of Jefferies Financial Group fell $3.84, or 9.3%, to $37.59 after the company reported lower-than-expected earnings and revenue for the latest quarter. Jefferies said it is affected by challenging market conditions for fixed-income trading.

The yield on the benchmark 10-year US Treasury note fell to 1.724% on Wednesday from 1.745% on Tuesday. Yields decrease as bond prices rise.

Overseas, the pan-continental Stokes Europe 600 gained 0.6%.

Hong Kong-listed Chinese tech stocks such as JD.com and Meituan jumped on Wednesday. Analysts and investors said there was no clear catalyst. Hong Kong’s Hang Seng Index rose 2.8% and China’s Shanghai Composite rose 0.8%.

Japan’s Nikkei 225 and South Korea’s Kospi rose 1.9% and 1.5%, respectively.

Write to Karen Langley at [email protected] and Caitlin Ostroff at [email protected]

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