Dow struggles for direction and stock market wobbles as investors parse inflation at 40-year high

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U.S. stock indexes mostly were trading at modest gains Wednesday afternoon, despite starting out on a stronger note, after a reading on inflation came in near a four-decade high.

What’s happening
  • The Dow Jones Industrial Average
    DJIA,
    -0.04%
    was up 20 points, or 0.1%, to 36,274.

  • The S&P 500
    SPX,
    +0.13%
    added 10 points, or 0.2%, to 4,723.

  • The Nasdaq Composite Index
    COMP,
    +0.10%
    rose 51 points, or 0.3%, to 15,204.

On Tuesday, the Dow rose 0.5%, the S&P 500 advanced 0.9% and the Nasdaq Composite advanced 1.4%.

What’s driving markets

Stock indexes were trading at modest gains Wednesday afternoon, following a consumer-price report that showed inflation rose 0.5% in December, which pushed the cost of living to a near 40-year high of 7% from a year ago, while also indicating elevated U.S. inflation could persist well into 2022.

The gain in the consumer-price index exceeded the 0.4% forecast of economists polled by The Wall Street Journal. Increases were driven largely by elevated costs for food, shelter and used cars, even as energy prices briefly fell from recent highs.

A separate measure of consumer inflation that strips out volatile food and energy prices rose 0.6% last month, the government said Wenesday. That pushed the increase over the past 12 months to 5.5% from 4.9%—a 31-year high.

“Since year-end, oil prices have jumped nearly 10%, with WTI currently sitting at $82 per barrel, suggesting that inflationary pressures from energy are likely to reemerge,” Steve Chiavarone, Federated Hermes’ head of multiasset solutions, wrote in emailed comments Wednesday.

While stocks were off the session’s best levels, Chiavarone called the market’s reaction to the inflation reading “muted/positive,” but also said it led to more conviction around March being the start of an interest-rate hiking cycle.

“Equity investors will need to prepare for choppy markets as the Fed pivots to deal with stickier inflation than they previously anticipated,” Matt Peron, director of research at Janus Henderson Investors, wrote in a Wednesday note.

“This is consistent with our view that the first few months of the year will be volatile as markets adjust, but then should set up a better outlook as the Fed completes its pivot and some traction is seen on the inflation front.”

Cleveland Fed President Loretta Mester on Wednesday said she backs the central bank shrinking its balance sheet “as fast as we can,” so long as the pace doesn’t hurt financial markets.

Read: As Wall Street watches yields climb, a big question emerges: What is the ‘right size’ for the Federal Reserve’s balance sheet?

Worries about runaway prices, and the Fed’s response, have helped the S&P 500/Citigroup pure value index
SP500PV,
-0.07%
rise 5.5% this year as the S&P 500/Citigroup pure growth index
SP500PG,
+0.40%
has retreated 5.1%.

Which other companies are in focus?
  • Jefferies Inc. JEF said Wednesday its fourth-quarter net income rose 6% to $324.9 million, or $1.20 a share, from $307.3 million, or $1.11 a share in the year-ago quarter. 

  • Shares of Pfizer Inc. PFE were down 0.1% after the company said administering the Prevnar 20 pneumococcal disease shot at the same time as the COVID-19 vaccine and booster it developed with BioNTech SE BNTX produced the same response.

  • Shares of Intuitive Surgical Inc. ISRG eased 1.7%, after the minimally invasive care company provided an upbeat fourth-quarter revenue outlook, amid strength in its instruments and accessories business and as the COVID-19 resurgence hurt results.

  • Popular Inc. BPOP said Wednesday it expects to repurchase $500 million worth of its stock in 2022, and that it raised its quarterly dividend by 22%, to 55 cents a share from 45 cents. Its stock was up 0.1%.

  • DirecTV and Dish Network
    DISH,
    +3.07%
    are in fresh talks to merge after years of on-again, off-again wrangling and multiple clampdowns from federal antitrust officials, the New York Post reported. Shares of Dish were up 4%.

  • Shares of Tesla Inc.
    TSLA,
    +3.91%
    were in focus, up 2.4%, after a teenager, calling himself a 19-year-old security specialist and hacker, said that he had hacked into the software systems of nearly two dozen Tesla electric-powered vehicles and had limited control over them.

How are other assets faring?
  • The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    1.734%
    fell 2 basis points to 1.73%. Treasury yields and prices move in opposite directions.

  • The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was down 0.7%.

  • Oil futures extended gains on Wednesday, with West Texas Intermediate crude CL00 for February delivery CLG22 rising 2.1% to $82.91 a barrel. Gold futures GC00 edged up 0.5% to $1,827.80 an ounce.

  • Bitcoin BTCUSD was up nearly 2.4% at $43,810.

  • The Stoxx Europe 600 SXXP closed up 0.7%, while London’s FTSE 100 UKX gained 0.8%.

  • The Shanghai Composite SHCOMP rose 0.8%, while the Hang Seng Index HSI closed 2.8% higher and Japan’s Nikkei 225 NIK rallied 1.9%.

Steve Goldstein contributed to this article.

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