By Joy Wiltermuth and Mark DeCambre
U.S. stock indexes closed with modest gains Wednesday, after a reading on inflation came in near a four-decade high.
What happened in markets
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.76% rose 38.30 points, or 0.1%, ending at 36,290.32.
The S&P 500 /zigman2/quotes/210599714/realtime SPX +2.47% added 13.28 points, or 0.3%, closing at 4,726.35.
The Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +3.33% rose 34.94 points, or 0.2%, finishing at 15,188.39.
On Tuesday , all three indexes gained ground, with the Nasdaq Composite leading the way with a gain of 1.4%.
What drove markets
Stocks were buoyed Wednesday as investors exhaled with relief after the latest reading on inflation, while running hot, wasn’t worse than anticipated.
The consumer-price index posted a monthly rise of 0.5% in December, as prices rose by 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 Wednesday . That pushed the increase over the past 12 months to 5.5% from 4.9%—a 31-year high.
While stocks closed off the session’s best levels, Kent Engelke, chief economic strategist at Capitol Securities Management, said the market was showing signs of relief that inflation pressures didn’t overshoot expectations.
“Now the next test is will inflation pressure actually moderate,” Engelke said, in a phone interview. “I do believe it will, but I don’t think it will back off the 2% target range the market is expecting.”
“We still will have above-trend growth and above-trend inflation,” he predicted, adding that such a mix could reignite the recent sharp rotation by investors into value stocks, but away from growth.
St. Louis Fed President James Bullard said Wednesday that four interest rate increases now appear likely to be needed to tackle high inflation, in a n interview with The Wall Street Journal following the latest inflation data.
Worries about runaway prices, and the Fed’s response, have helped the S&P 500/Citigroup pure value index /zigman2/quotes/210600214/delayed XX:SP500PV +1.79% rise 5.5% this year as the S&P 500/Citigroup pure growth index /zigman2/quotes/210600244/delayed XX:SP500PG +3.58% has retreated 5.1%.
However, climbing oil prices potentially could still add to consumer woes. “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 re-emerge,” Steve Chiavarone, Federated Hermes’ head of multiasset solutions, wrote in emailed comments Wednesday.