Positive Reaction To Inflation Data, Bank Earnings Leads To Rally On Wall Street

Stocks moved sharply higher early in the session on Wednesday and continued to turn in a strong performance throughout the trading day. The major averages all surged after ending Tuesday’s trading narrowly mixed.

The tech-heavy Nasdaq posted a standout gain, soaring 466.84 points or 2.5 percent to 19,511.23 after ending the previous session at its lowest closing level in almost two months.

The Dow also jumped 703.27 points or 1.7 percent to 43,221.55, while the S&P 500 shot up 107.00 points or 1.8 percent to 5,949.91.

The rally on Wall Street reflected a positive reaction to the Labor Department’s closely watched report on consumer price inflation in the month of December.

While the report showed consumer prices rose by slightly more than expected in December, the annual rate of core consumer price growth unexpectedly slowed.

The Labor Department said its consumer price index climbed by 0.4 percent in December after rising by 0.3 percent in November. Economists had expected consumer prices to rise by another 0.3 percent.

The report also said the annual rate of growth by consumer prices accelerated to 2.9 percent in December from 2.7 percent in November, in line with economist estimates.

Meanwhile, the Labor Department said core consumer prices, which exclude food and energy prices, edged up by 0.2 percent in December after increasing by 0.3 percent for four straight months. The uptick matched expectations.

The annual rate of growth by core consumer prices slowed to 3.2 percent in December from 3.3 percent in November, while economists had expected yearly growth to remain unchanged.

“Core Inflation isn’t accelerating and that’s the story,” said Jamie Cox, Managing Partner for Harris Financial Group. “The market may have had its hair on fire about inflation running away again, but the data do not support that conclusion.”

Positive sentiment was also generated in reaction to upbeat earnings news from financial giants JPMorgan Chase (JPM), Goldman Sachs (GS) and Citigroup (C).

Sector News

Financial stocks moved sharply higher in reaction to the upbeat earnings news, with the KBW Bank Index and the NYSE Arca Broker/Dealer Index spiking by 4.1 percent and 3.1 percent, respectively.

Substantial strength was also visible among interest rate-sensitive housing stocks, resulting in a 2.3 percent surge by the Philadelphia Housing Sector Index.

Computer hardware, semiconductor and software stocks also saw considerable strength, contributing to the strong upward move by the tech-heavy Nasdaq.

Retail, steel and energy stocks also showed notable moves to the upside on the day, moving higher along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Wednesday. Japan’s Nikkei 225 Index edged down by 0.1 percent, while Hong Kong’s Hang Seng Index rose by 0.3 percent.

Meanwhile, the major European markets all moved to the upside on the day. While the German DAX Index surged by 1.5 percent, the U.K.’s FTSE 100 Index jumped by 1.2 percent and the French CAC 40 Index climbed by 0.7 percent.

In the bond market, treasuries moved sharply higher in reaction to the consumer price inflation data. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, plunged by 13.5 basis points to 4.653 percent.

Looking Ahead

Trading on Thursday may be impacted by reaction to a slew of U.S. economic data, including reports on weekly jobless claims and retail sales.

On the earnings front, Bank of America (BAC), Morgan Stanley (MS) and UnitedHealth (UNH) are among the companies due to report their quarterly results before the start of trading.

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