Stocks rose Wednesday as investors eyed a new report on inflation, which showed another decades-high rate of price increases across the recovering economy. Still, this came a day following remarks from Federal Reserve Chair Jerome Powell reasserting that the central bank would step in as needed to rein in rising prices.
The Bureau of Labor Statistics' December Consumer Price Index (CPI) showed prices rose at a 7.0% year-over-year rate at the end of 2021, marking the fastest increase since 1982. This matched consensus estimates, based on Bloomberg data, and accelerated from November's already elevated 6.8% increase. On a month-over-month basis, consumer prices rose 0.5%, or slightly more than the 0.4% rise expected, to mark an eighteenth consecutive month of price increases.
Excluding food and energy prices, the so-called core measure of consumer prices rose 5.5% in December over last year, coming in at the fastest rate since 1991.
Wednesday's market moves came following a rebound rally on Tuesday, with markets at least temporarily finding relief in assurances from Federal Reserve Chair Jerome Powell that the central bank would step in as necessary to ease rising prices. In Powell's renomination hearing before the Senate Banking Committee, the central bank leader reiterated that the Fed would use its policy tools to bring down inflation.
“If we see inflation persisting at high levels, longer than expected, if we have to raise interest rates more over time, then we will,” Powell said during the hearing.
The central bank previously telegraphed it was eyeing three interest rate hikes this year to bring benchmark rates up from their current near-zero levels. However, some top Wall Street firms have predicted the Fed will raise rates four times given the current inflationary backdrop.
But though Powell doubled down on the Fed's goal of curbing inflation and using interest rate hikes as a tool to achieve this, he revealed little further about the Fed's plan to begin shrinking its nearly $9 trillion balance sheet. The Fed's December meeting minutes last week suggested central bank officials were beginning to discuss drawing down the Fed's balance sheet after nearly two years of asset purchases to help support markets during the pandemic. Powell did reiterate in his hearing he expected the balance sheet runoff process would begin this year.
"I think the biggest comment on most investors' minds that we talk to around the world would be a 'policy mistake' that the Fed might be too aggressive," Brian Belski, BMO Capital Markets chief investment strategist, told Yahoo Finance Live on Tuesday. "Mr. Powell basically came out today and said this is going to be a process ... with respect to how long this is going to take, and I think that's what's calming investors."
Though prospects of higher borrowing costs and tighter financial conditions have stirred up volatility in U.S. equities and tech stocks especially in recent sessions, Tuesday's session saw a reversal, with the tech-heavy Nasdaq Composite sharply outperforming.
"The issue with tech, I would argue, is not so much one of a little extra duration exposure because growth is further away, but it's simply one of valuation," Simeon Hyman, ProShares Global Investment Strategist, told Yahoo Finance Live on Tuesday. "And indeed those top-heavy, largest-cap tech stocks perhaps just were a little bit expensive going into the end of last year and the beginning of 2022. But don't completely rule out good growth stories because that is the biggest defense against inflation. It is the growth of earnings and dividends."
11:40 a.m. ET: Financials set another record high as expectations for higher rates mount
The S&P 500 Financials sector exchange-trade fund XLF set a fresh record intraday high again on Wednesday, marking its fourth record in the 8 trading days so far in 2022.
Prices for the ETF rose slightly to as much as $41.65 during morning trading, and it has returned about 6% so far for the year-to-date. Over the past 52 weeks, it has gained 32% through intraday trading, outperforming the S&P 500's 24% rise over that period.
Individual bank stocks also gained on Wednesday. JPMorgan Chase, which reports quarterly earnings results Friday morning, rose by 0.3%, while Citigroup shares increased by about the same margin.
10:59 a.m. ET: What economists are saying about the highest inflation in about 40 years
U.S. stocks marched higher despite the biggest rise in inflation since 1982, based on this morning's CPI print. According to some pundits, this may be due to the fact that the market had already priced in the rise, since consensus economists had already been looking to see inflation accelerate to 7% in December. And moreover, some of the components beneath the headline CPI index pulled back compared to prior months.
Here's what some economists and strategists had to say about the latest CPI report, based on emails and notes sent to Yahoo Finance:
"Although today’s inflation number was pretty much in line with our and most analysts’ expectations, the data should have been better given the significant decline in energy prices, particularly gasoline. Core inflation is now rising faster than headline month on month. Inflationary pressures are now pretty well endemic across the entire U.S. economy." – Matthew Sherwood, global economist at Economist Intelligence Unit
"Persistent high inflation rates together with the recent strong labor market data reinforce the hawkish narrative provided by the Fed. Looking ahead, Omicron looks set to dictate the fate of the economy in January and maybe in February. But current indications on how the new variant plays out suggest that the Fed will remain on track to reduce its accommodative monetary policy, most likely as early as in March this year, by hiking rates for the first time since December 2018." – Christian Scherrmann, DWS Group U.S. economist
"December’s increase to 7.0% ... likely is not quite the peak which we think will be about 7.2% in January and February, but the run of big increases is over, and it will start to fall in March. By September, we look for 4-1/2%." – Ian Shepherdson, chief economist at Pantheon Macroeconomics
"The nation is unlikely to see another year of inflation like it did in 2021 as the price increases were fed by Fed emergency stimulus and over-the-top fiscal stimulus that drove demand for store-bought goods to unforeseen heights. The danger is just how entrenched inflation has become in society and the warning signs are clearly there with services prices going up in unison with consumer goods even with the service sector of the economy not back to pre-pandemic levels." – Chris Rupkey, chief economist for FWDBONDS
9:31 a.m. ET: Stocks open higher
Here's where markets were trading Wednesday morning:
S&P 500 (^GSPC): +25.02 (+0.53%) to 4,738.09
Dow (^DJI): +170.06 (+0.47%) to 36,422.08
Nasdaq (^IXIC): +130.07 (+0.83%) to 15,283.58
Crude (CL=F): +$0.93 (+1.15%) to $82.15 a barrel
Gold (GC=F): +$1.70 (+0.09%) to $1,820.20 per ounce
10-year Treasury (^TNX): -2.6 bps to yield 1.72%
8:37 a.m. ET: Consumer prices post biggest jump since 1982
The U.S. Consumer Price Index (CPI) posted its fastest rise in nearly 40 years at the end of 2021, signaling still-elevated inflationary pressures as supply chain bottlenecks persist and demand remains high.
Prices rose at a 7.0% clip in December over last year — the fastest pace since June 1982. On a month-over-month basis, the rise was 0.5%, or slightly above the 0.4% increase expected, but a slowdown from November's 0.8% gain.
By category, prices for used cars and trucks and shelter were the largest contributors to the headline increase. The used cars and trucks index rose for a third straight month and accelerated to a 3.5% month-on-month rise in December from November's 2.5% increase. This index was also higher by a marked 37.3% compared to the same month last year. Shelter prices rose 0.4%.
The core measure of consumer price changes, which excludes volatile food and energy prices, rose 5.5% in December over last year, representing the fastest increase since 1991. This accelerated from a 4.9% annual gain in November.
7:15 a.m. ET Wednesday: Stock futures gain ahead of CPI report
Here's where markets were trading before the opening bell on Wednesday:
S&P 500 (^GSPC): +5.5 points (+0.12%) to 4,710.50
Dow (^DJI): +41 points (+0.11%) to 36,169.00
Nasdaq (^IXIC): +32.75 points (+0.21%) to 15,863.75
Crude (CL=F): +$0.73 (+0.9%) to $81.95 a barrel
Gold (GC=F): -$1.80 (-0.10%) to $1,816.70 per ounce
10-year Treasury (^TNX): -0.1 bps to yield 1.745%
6:09 p.m. ET Tuesday: Stock futures open slightly higher
Here's where markets were trading Tuesday evening:
S&P 500 futures (ES=F): +0.5 points (+0.01%), to 4,705.50
Dow futures (YM=F): +2 points (+0.01%), to 36,130.00
Nasdaq futures (NQ=F): +3.5 points (+0.02%) to 15,834.50
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter