Wall Street advanced on Friday and the S&P 500 notched an all-time closing high, as market participants digested an inflation reading that was in line with consensus, but also marked the largest annual increase in consumer prices in nearly four decades.
All three major United States stock indexes advanced, with tech shares doing the heavy lifting.
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The Dow Jones Industrial Average rose 0.6 percent to 35,970.99, the S&P 500 gained 0.95 percent to 4,712.02 and the tech-heavy Nasdaq Composite Index added 0.73 percent to 15,630.60.
The indexes all ended the session higher than last Friday’s close, and the benchmark S&P 500 posted its biggest weekly percentage advance since February, as waning jitters over the Omicron coronavirus variant helped fuel a broad rally early in the week.
A report from the US Department of Labor showed consumer prices surged last month to a 6.8 percent annual growth rate, the highest reading in more than 39 years.
“It would appear that today’s reaction would indicate the markets were discounting the [consumer price index or CPI] reading,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana. “The markets are always looking forward and perhaps today’s reading is indicative of a peak versus a sustained level.”
Persistent inflation due to ongoing supply-chain challenges suggests the US Federal Reserve could very well start tightening its accommodative monetary policy sooner than many might have hoped.
“Clearly, it’s being driven primarily by supply-chain issues,” Said Tim Ghriskey, senior portfolio strategist at Inverness Counsel in New York. “But it appears these issues could be easing, and over time we should see them moderate. And that should take the foot off the inflation accelerator.”
A Reuters poll of economists sees the central bank hiking key interest rates from near zero to 0.25-0.50 percent in the third quarter of next year, followed by another in the fourth quarter.
The Fed is expected to convene next week for its two-day monetary policy meeting, which market participants will be scrutinising for any clues regarding those rate increases along with the pace at which it will taper its bond purchases.
“The Fed is has telegraphed on tightening sooner rather than later,” Carlson said. “The markets are more comfortable with Fed tightening if it reduces inflation expectations.”
Shares of software firm Oracle Corp jumped after it forecast an upbeat third-quarter outlook.
Broadcom Inc advanced following the chipmaker’s announcement of a $10bn share buyback plan.
Elon Musk, chief executive of Tesla Inc, tweeted that he is “thinking of quitting my jobs & becoming an influencer full-time.” The electric car maker’s stock ended the session higher.
Southwest Airlines dropped after Goldman Sachs downgraded the commercial air carrier’s shares to “sell” from “neutral”.