Market Snapshot: Dow fights for gains as stock market wobbles in attempt to wave off hottest CPI in nearly 40 years

U.S. stock benchmarks were bouncing around on Friday as investors digested data that showed consumer prices in November rose by the most in nearly four decades while indexes are near record highs, with the Federal Reserve expected to tighten monetary policy again next week.

How are stock-index futures trading?
  • The S&P 500 index SPX was up 0.5%, or 24 points, at 4,691, after touching an intraday peak at 4,705.38, above its Nov. 18 record closing high at 4,704.54. The index touched an intrasession nadir at 4,670.24.
  • The Dow Jones Industrial Average DJIA advanced 60 points, or 0.2%, to 35,815, but had hit a Thursday low at 35,710.43.
  • The Nasdaq Composite Index COMP rose 0.3%, or 45 points, to reach 15,563, but had sunk to an intraday nadir at 15,477.85.

On Thursday, the Dow fell in the final moments of trading, dropping 0.06 point to 35,754.69, while the S&P 500 slipped 0.72% to 4,667.45 and the Nasdaq Composite, meanwhile, slid 269.62 points or 1.71% to 15,517.37, marking its worst daily decline since Dec. 3.

What’s driving the markets?

Investors were interpreting the consumer inflation data as not as bad as the worst-case-scenario for Wall Street.

Data released ahead of the stock market open on Wall Street showed November consumer price inflation rose 6.8% annually, slightly higher than expectations for a rise of 6.7% by a poll of economists by The Wall Street Journal. It marks the fastest annual inflation rate since 1982.

The cost of living rose 0.8% on the month, just ahead of expectations for a 0.7% gain. Core inflation, which strips out food and energy costs, jumped 0.5% in November as expected, while core inflation year-over-year in November rose 4.9%.

“The in-line year on year reading plus the slight move lower in the monthly read appears to have eased bets of a sooner rate rise by the Fed,” wrote Fiona Cincotta, senior financial markets analyst at City Index, in a market brief. The analyst said that the market also may have “built itself up for a much higher reading.”

“The initial reaction has seen the US dollar fall and stocks rise with high growth tech stocks leading the charge; moves consistent with easing hawkish Fed expectations. However, the initial knee jerk reaction isn’t always the one that stays,” the City Index analyst cautioned.

The consumer inflation report now sets the stage for next week’s Federal Open Market Committee meeting after the central bank telegraphed its plans to increase the pace of monetary policy tightening, at least inasmuch as tapering bond purchases is concerned.

“For policy, this report increases the probability that the Fed will announce an accelerated tapering at its December meeting, which markets are already expecting,” wrote Alex Pelle, U.S. economist at Mizuho, in a Friday note.

“At the current pace of inflation, the economy would be on track to average 2% inflation over two business cycles (since the Great Financial Crisis) by next year,” Pelle wrote. “As such, we expect the December SEP ‘dot plot’ will show at least 2 hikes at the median in 2022, with a risk that it shows 3 hikes at the median for 2022”, the economist wrote, referring to the chart of the interest-rate projections from members of the FOMC.

The Fed will meet Dec. 14-15.

Meanwhile, a report on consumer sentiment from the University of Michigan’s gauge rebounded in December to 70.4 from a final November reading of 67.4. Economists polled by The Wall Street Journal expected an index reading of 68.0. 

See also: Household wealth has surged an astonishing $36 trillion. What that means for markets.

What companies are in focus?
How are other assets trading?
  • The yield on the 10-year Treasury note BX:TMUBMUSD10Y  retreated 1.2 basis points to 1.47%, after pitching higher early Friday. Treasury yields and prices move in opposite directions.
  • The ICE U.S. Dollar Index  DXY, a measure of the currency against a half-dozen other monetary units, was little changed at 96.268 and off less than 0.1% thus far in the week.
  • In oil futures, West Texas Intermediate crude  CL00  for January delivery  CLFFX  rose 29 cents, or 0.4% to $71.19 a barrel on the New York Mercantile Exchange and was on track for a 7.7% weekly surge.
  • Gold futures  GC00 for February delivery  GCG22 rose 0.2% to $1,780.10 an ounce and was headed for a flat finish for the week.
  • The Stoxx Europe 600 Index  XX:SXXP closed 0.3% lower on Friday but finished the week 2.8% higher, while London’s FTSE 100 Index  UK:UKX fell 0.4% but put in weekly advance of 2.4%.
  • In Asia, the Shanghai Composite Index CN:SHCOMP closed 0.1% lower, while the Hang Seng Index  HK:HSI  fell 1% in Hong Kong but booked a 1% weekly climb, and China’s CSI 300  XX:000300 fell 0.5% but boasts a 3.1% weekly rally. Japan’s Nikkei 225 Index  JP:NIK  closed down 1% but notched a 1.5% rose over the five-day period.

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