After beginning the day in the red following a hotter-than-expected read on consumer inflation and a disappointing retail sales report, U.S. equities finished the day with solid gains to notch a fourth day in its current winning streak. Treasury yields continued to rally, supporting the financial sector, and the U.S. dollar extended a renewed drop. Crude oil and gold prices were higher.

The Dow Jones Industrial Average (DJIA) rose 253 points (1.0%) to 24,894, the S&P 500 Index advanced 36 points (1.4%) to 2,699, and the NASDAQ Composite rallied 130 points (1.9%) to 7,144. In moderately-heavy volume, 926 million shares were traded on the NYSE and 2.2 billion shares changed hands on the NASDAQ. WTI crude oil jumped $1.41 to $60.60 per barrel and wholesale gasoline gained $0.02 to $1.71 per gallon. Elsewhere, the Bloomberg gold spot price increased $22.66 to $1,352.21 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.8% lower at 89.03.

The Consumer Price Index (CPI) rose 0.5% month-over-month (m/m) in January, above the Bloomberg estimate of a 0.3% rise, and versus December’s upwardly-revised 0.2% increase. The core rate, which strips out food and energy, was 0.3% higher m/m, compared to expectations of a 0.2% increase, and December’s downwardly-revised 0.2% gain. Y/Y, prices were 2.1% higher for the headline rate, north of forecasts of a 1.9% rise and matching December’s unrevised rise. The core rate was up 1.8% y/y, versus projections of a 1.7% gain and in line with December’s unadjusted increase.

Apparel prices were noticeably higher, rising by the biggest amount since 1990, per Bloomberg, while prices for rent, medical care and motor vehicle insurance also gained. Bloomberg added that the increase in the core CPI rate brought the three-month annualized gain to 2.9%, the fastest since 2011. The report is exacerbating inflation concerns that have been a major source of the recent stock market correction that began with the February 2 nonfarm payroll report showing the largest gain in wage growth since 2009 to foster concerns about a potentially faster pace of Fed rate hikes this year and extend the run in bond yields seen as of late.

Advance retail sales for January declined 0.3% m/m, compared forecasts of a 0.2% gain, while December’s 0.4% rise was revised to a flat reading. Last month’s sales ex-autos were flat m/m, below expectations of a 0.5% gain, while the prior month’s 0.4% rise was downwardly-revised to a 0.1% increase. Sales ex-autos and gas decreased 0.2% m/m, below estimates of a 0.3% increase, and December’s 0.4% gain was revised to a flat reading. The retail sales control group, a figure used to help calculate GDP, was flat, south of projections of a 0.4% rise, and the prior month’s 0.3% gain was adjusted to a 0.2% decrease. Sales of autos, building materials and garden equipment, health and personal care and sporting goods all fell, more than offsetting a solid gain in clothing and a rise in electronics and appliances.

The MBA Mortgage Application Index declined 4.1% last week, following the prior week’s 0.7% rise. The decrease came as a 1.9% drop in the Refinance Index was met with a 5.9% fall for the Purchase Index. The average 30-year mortgage rate gained 7 basis points (bps) to 4.57%.

Treasuries were lower following the inflation data, as the yield on the 2-year note rose 6 basis points (bps) to 2.16%, the yield on the 10-year note increased 7 bps to 2.91%, and the 30-year bond rate was 5 bps higher at 3.17%. Although bond yields extended a recent jump, the U.S. dollar remained under recently-resurfaced pressure.

Schwab Center for Financial Research – Market Analysis Group

©2018 Charles Schwab & Co., Inc., Member SIPC. All rights reserved.

Schwab Center for Financial Research (“SCFR”) is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.