Stocks are little changed as Wall Street digests red hot inflation report

U.S. stocks were calm on Wednesday after a key inflation report showed a historic gain but largely matched expectations.

The Dow Jones Industrial Average rose 7 points, or less than 0.1%. The S&P 500 added roughly 0.2%, and the Nasdaq Composite rose 0.1%.

The moves come after the December reading for the consumer price index, a gauge of prices across a broad spectrum of goods, showed a gain of 7% year over year. That is the biggest jump since 1982, but was in-line with expectations from economists surveyed by Dow Jones. The monthly increase was slightly hotter than expected.

However, interest rates already moved sharply higher in the first week of 2022, sparking a sell-off in tech stocks. That suggests the hot inflation report, and future actions by the Federal Reserve, may be at least partially priced in to the market.

“Fears about higher and persistent inflation have been well telegraphed in recent months. Therefore, investors had been expecting the rate of inflation to rise. Today’s rise in the rate of inflation falls within investors’ expectations,” Richard Flynn, managing director at Charles Schwab UK, said in a note.

Stocks tied to economic growth were some of the stronger performers, with chemical company Mosaic rising more than 2% and Freeport-McMoRan jumping 3.7%. Software giant Microsoft and Google-parent Alphabet each added more than 1%.

Dish Network rose 3% following news that the company is again in merger talks with DirectTV, according to sources who spoke with the New York Post. On the downside, Biogen shares tumbled nearly 9% following news that Medicare will only cover the cost for the company’s Alzheimer’s drug Aduhelm for patients with early-stage symptoms who are enrolled in clinical trials.

Though CPI is not the Federal Reserve’s primary inflation gauge, policymakers are watching a variety of measures as they embark on the first stages to tightening the most accommodative policy measures in the central bank’s history.

Fed Chairman Jerome Powell told Senate lawmakers Tuesday that he expects interest rate increases this year along with the end of the monthly bond-buying program in March and a reduction in asset holdings. Powell said the moves likely will be needed to control inflation at a time when the economy has recovered substantially from the pandemic shock.

“The anxiety relating to the Fed’s recent hawkish tilt and the outlook for higher rates seems to have calmed a tad (at least for now), leaving investors fishing for opportunities in pockets that saw the deepest cuts in recent weeks,” Chris Hussey, a managing director at Goldman Sachs said in a note.

The market moves come a day after a rally on Wall Street as investors bought the dip following a five-day sell-off in the S&P 500. On Tuesday, the tech-heavy Nasdaq Composite gaining more than 1% for a second straight day of gains. The S&P 500 rose 0.9%, snapping a five-day slide, while the blue-chip Dow added 180 points.

Technology shares have suffered a steep sell-off in the new year after the Federal Reserve signaled a faster-than-expected tightening schedule. Many bet that the market could see the first interest-rate hike as soon as March.

Bond yields, which spiked to start 2022, stabilized on Tuesday with the 10-year Treasury yield slipping to 1.76% after topping the 1.8% level earlier in the week. The 10-year retreated further to 1.72% on Wednesday morning.

Meanwhile, big banks will kick off the fourth-quarter earnings season on Friday. JPMorgan Chase, Citigroup and Wells Fargo are slated to release quarterly results before the bell.