Wall Street recorded modest gains on Thursday, extending a rally seen the previous session, as investors bet new inflation statistics will allow the Federal Reserve to slow the pace of its interest rate hikes.
The Nasdaq Composite (COMP.IND) closed +0.6%, the S&P 500 (SP500) ended +0.3% and the Dow (DJI) finished +0.6%.
Looking at closing numbers, Dow Jones advanced 216.96 points to conclude trading at 34,189.97. The S&P 500 rose 13.56 points to end at 3,983.17, while the Nasdaq climbed 69.43 points to finish at 11,001.10.
Eight of the 11 S&P sectors ended with gains. This was led by greater-than-1% advances in Real Estate and Energy. Utilities, Health Care and Consumer Staples all posted modest declines.
“Today’s market action was all about the inflation numbers,” analyst Leo Nelissen told Seeking Alpha. “Market participants are now pricing in just two more 25 basis point rate hikes, which means the market believes that the Federal Reserve will soon change its outlook.”
He added that “the market is playing a dangerous game,” with inflation only coming down in select areas, like energy and vehicle prices, while other areas, like wages and housing, “remain major issues the Fed will be forced to address to avoid a 1970s-style inflation rebound.”
Nelissen concluded: “This means the market has priced in a lot. Any hawkish comments from the Fed or a reiteration of its outlook could be bad news for bulls.”
Thursday’s gains followed the release of closely watched consumer price statistics, which showed an as-expected slowing of inflation in December. Investors took the data as confirmation that the Fed would raise interest rates by 25 basis points at its next meeting.
According to the CME FedWatch tool, the markets are now pricing in a 96% probability of a 25 bps hike, compared to the 77% chance that was seen prior to the data release.
Specifically, the headline CPI slowed to a 6.5% annual increase in the month, compared to the 7.1% seen in the prior reading. The core figure, which excludes the volatile food and energy sectors, showed a 5.7% rise, exactly matching projections.
Looking at the fixed-income market, Treasury yields extended their decline. The 10-year yield (US10Y) fell 12 basis points to 3.44% and the 2-year yield (US2Y) dropped 10 basis points to 4.13%.
Among active stocks, Taiwan Semiconductor (TSM) rose following the release of its quarterly results. While the company missed projections with its revenue figure, investors focused on its Street-beating bottom line.