Wall Street shows optimism ahead of CPI data; Dow, S&P 500, Nasdaq rise

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Stocks finished higher on Wednesday, as investors prepared for a key inflation report due out the following day. The Nasdaq led the major averages higher, climbing by nearly 1.8%.

The Nasdaq Composite (COMP.IND) closed +1.8%, the S&P 500 (SP500) finished +1.3% and the Dow (DJI) ended +0.8%.

Looking at the closing numbers, the Nasdaq climbed 189.04 points to conclude trading at 10,931.67. The Dow rose 268.91 points to end at 33,973.01, while the S&P 500 advanced 50.36 points to close at 3,969.61.

All 11 S&P sectors recorded gains. This was led by a 3.6% surge in Real Estate. Consumer Discretionary was another of the market leaders, advancing 2.7%. Consumer Staples was a laggard, closing just above the unchanged mark.

There was little to drive the overall market during Wednesday’s trading, but Wall Street looked ahead to the government’s consumer price index for December. The report is due out Thursday morning, providing the latest read for consumer inflation.

Investors will be looking for signs of slowing in the pace of price increases. Such moderation would open the door for the Federal Reserve to pivot its ultra-hawkish interest rate policy. However, if inflation remains stubbornly high, Wall Street will worry that the Fed will need to stick with its tight policy for longer than expected.

“Markets had a fantastic day,” analyst Daniel Jones, manager of Avaring Capital Advisors, told Seeking Alpha. “The picture grew better as the day neared its end, with investor optimism growing in response to expectations that inflation data that’s coming on Thursday will confirm a slowing trend.”

Jones added: “Obviously, only the data will tell what the actual situation is. But if [cooler inflation] comes to fruition, it will signify a potential soft landing that might result in interest rates rising slower than previously anticipated and peaking at a level that’s lower than it otherwise might be. … In the event that the picture does end up being better than expected, some of the very companies and market segments that have been most harmed by concerns over rising interest rates could be the ones to benefit the most.”

On the fixed income front, bond yields edged lower after an increase in the previous session. The 10-year Treasury yield (US10Y) declined 8 basis points to 3.54% and the 2-year yield (US2Y) slipped 4 basis points to 4.22%.

Among active stocks, Victoria’s Secret (VSCO) posted a double-digit percentage gain after updating its guidance and announcing a new stock repurchase plan.

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