Stocks Finish Higher In a Choppy Session as Inflation Runs Hot…..
U.S. equities managed to add on to yesterday’s gains as consumer price inflation showed a modest increase month-over-month, and the year-over-year headline figure came in line with expectations but near a 40-year record. The somewhat turbulent start to 2022 has been fostered by rising expectations that the Fed and other global central banks are accelerating down the tightening path. Yesterday’s testimony from Fed Chair Jerome Powell seemed to not spook the markets as he did not ramp up his recently hawkish tone. Concerns about the omicron variant’s severity appear to be continuing to ease, but questions about the impact on global supply chains and worker shortages continue to persist. Treasuries were mixed after yields seeing some earlier pressure on the longer end of the curve, and the U.S. dollar declined. Gold and crude oil prices increased. In equity news, Biogen fell after Medicare announced that it will restrict access to the company’s Alzheimer’s drug, while Ally Financial raised its dividend and share repurchase program, and Jefferies Financial Group missed Q4 earnings forecasts but announced increases to its dividend and stock buyback plan. The Fed delivered a read on economic activity across the nation in afternoon action, showing economic activity expanding at modest pace, but noting cooling growth expectations from some businesses despite optimism being generally high. Europe finished mostly higher as Energy issues continued the advance, and despite the drag caused by Healthcare stocks, and Asia ended the day broadly higher.
The Dow Jones Industrial Average rose 38 points (0.1%) to 36,290, the S&P 500 Index increased 13 points (0.3%) to 4,726, and the Nasdaq Composite was 35 points (0.2%) higher at 15,188. In heavy volume, 4.0 billion shares of NYSE-listed stocks were traded, and 4.3 billion shares changed hands on the Nasdaq. WTI crude oil increased $1.42 to $82.64 per barrel. Elsewhere, the gold spot price increased $8.50 to $1,827.00 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—lost 0.7% to 94.94.
The Consumer Price Index (CPI) rose 0.5% month-over-month (m/m) in December, above the Bloomberg consensus estimate of a 0.4% increase, and following November’s unrevised 0.8% gain. The core rate, which strips out food and energy, increased 0.6% m/m, topping forecasts to match November’s unadjusted 0.5% rise. Y/Y, prices were 7.0% higher for the headline rate—the fastest pace since June 1982—matching estimates and following the prior month’s 6.8% increase. The core rate was up 5.5% y/y, above projections of a 5.4% increase, and following November’s unrevised 4.9% rise.
Prices for shelter and for used cars and trucks were the largest contributors, while food also contributed, although it increased less than in recent months. Moreover, energy prices declined in December, ending a long series of increases as prices for gasoline and natural gas both decreased.
The MBA Mortgage Application Index rose 1.4% last week, following the prior week’s drop of 5.6%. The increase came as a 0.1% dip for the Refinance Index was more than offset by a 2.2% gain for the Purchase Index. The average 30-year mortgage rate jumped 19 basis points (bps) to 3.52%.
Rounding out the day, the Fed released its Beige Book—an anecdotal read on business activity across all Fed districts used as a policy tool to prep for the next monetary policy meeting, scheduled for January 25-26. The report indicated that economic activity expanded at a modest pace during the last weeks of 2021, but many Districts reported that labor shortages and continued supply chain disruptions continued to constrain the growth, while citing the increase in COVID-19 cases as a reason for a pullback in leisure travel, hotel occupancy, and restaurant patronage. The report also noted that the manufacturing sector continued to expand, albeit at a different pace of growth across Regions. While the demand for materials and inputs and the demand for workers remained strong and optimism was generally high, few Districts reported that expectations of growth have cooled somewhat, citing reports from some businesses.
Treasuries were mixed, as the yield on the 2-year note was little changed at 0.90%, the yield on the 10-year note declined 1 basis point to 1.73%, while the 30-year bond rate increased 1 basis point at 2.09%.
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