Stocks Move Higher As Inflation Report Boosts Confidence
5:03 pm Friday, December 10th, 2021
U.S. stocks rose Friday after in-line inflation data spurred bets the Federal Reserve won’t have to accelerate plans to tighten monetary policy.
All 11 S&P 500 sectors started the session higher, but five of them have slipped into negative territory with modest losses. The information technology (+1.4%) and consumer staples (+1.6%) sectors are up more 1.0%, while the energy sector (-0.6%) lags with a 0.6% decline.
Prior to the open, the Consumer Price Index (CPI) showed total CPI increased 0.8% m/m in November (Briefing.com consensus 0.6%), leaving it up 6.8% yr/yr for its highest yearly increase since 1982. Core CPI, which excludes food and energy, increased 0.5% m/m, as expected, and was up 4.9% yr/yr.
The market was already bracing for a hot inflation print, especially after the White House said yesterday the data was backwards-looking and didn’t account for the recent decline in prices. The latter statement has supported the belief that inflation pressures could be peaking, as well as the corresponding move in Treasuries.
The inflation-sensitive 10-yr yield is down three basis points to 1.46% after trading at 1.51% before the report was released. More notably, the 2-yr yield is down six basis points to 0.63%, even though the data supports the case for the Fed to be more aggressive with its tapering plan and potentially hike three times next year.
The counter-intuitive price action in Treasuries might also be attributed to short-covering activity. The same logic doesn’t really apply to equities since inflation can be a sign of robust economic activity and even offer companies pricing power, which is good earnings.
Speaking of earnings, Oracle (ORCL), Broadcom (AVGO), and Costco (COST) each beat EPS estimates, with ORCL and AVGO also announcing plans to repurchase $10 billion of stock. Shares of these companies have appreciated greatly today.
The CBOE Volatility Index has dropped 9.6% to 19.50, reflecting decreased expectations for a downturn in the market. The S&P 500 is trading near record highs and briefly topped its closing record high (4704.54) earlier in the session.
