The stock market rallied as investors took heart overriding prior inflation fears even as consumer price index rises above expectations to 0.5% in January from the previous month.
Apparel prices accounted for much of the jump, around 3% of the index. Women’s apparel costs rose to a record 3.4% the most in 30 years according to the Labor Department report. Investors regained confidence helping to stabilise markets which had its fourth straight day of gains. Economists argue that inflation data alone does not suggest a compelling trend and that inflation was still in line with the Federal Reserve’s forecast particularly as the US economy continues to see strong fundamentals. Others see the stronger-than-expected figure as fanning flames for those concerned about the Fed quickening the pace of rate rises.
The S&P 500 index advanced +1.35% led by Chipotle Grill which jumped +15.33% and Interpublic Group which added +10.17%. Leading today’s sector gainers were financials +2.53% and technology up +1.99%. The Dow Jones industrial average rose 253 points up +1.03% led by Nike up +3.17%. Among the movers were Goldman Sachs up +2.76% and IBM up +2.68%. Nasdaq also climbed +1.86% on the strength of techs. Apple rose +1.84%, Alphabet +1.76%, Facebook +3.68% and Microsoft +1.57%.
- Dow 24,896.31 +1.03%
- S&P 500 2,698.96 +1.35%
- Nasdaq 7143.62 +1.86%
- Russell 2000 1,522.02 +1.81%
- NYSE Composite 12,747.18 +1.38%
- Gold 1,355.2 +1.85%
- Oil WTI $60.69 +2.53%
Treasury yields close to breakout
Investors flogged government bonds causing yields to rise following the release of CPI data that showed a jump in inflation. The 10-Year Treasury yield was at 2.9177% at 4:30 EST on Wednesday compared to 2.829% on Tuesday. Bonds prices are inverse to yields.
Thus far, in 2018 there has been a jump in yields, breaking out of key technical points. Commentators expect further increase in yields as the year progresses bouncing around 2.85% heading towards 3% possibly higher than that by year end.
What does it spell for equities? A rapid increase in yields similar to the spike that caused the market to spiral in to a correction a couple of weeks ago could spell trouble. However, if the US economy continues to fire on all cylinders remaining strong it may lessen any negative impact on equities market and an offset will be stronger corporate earnings.
Investors will have to adjust to a more volatile year than last year and higher inflation and interest rates.