U.S. stocks capped a choppy session higher Wednesday as investors pondered the outlook for interest rates after economic data showed strong consumer spending and an uptick in inflation across January.
All three major averages climbed into positive territory into the final 10 minutes of trading following declines for much of the session. The S&P 500 (^GSPC) inched up 0.3%, while the Dow Jones Industrial Average (^DJI) advanced a modest 0.1%. The technology-heavy Nasdaq Composite (^IXIC) led the way up, gaining 0.9%.
Retail sales smashed estimates last month, data from the Commerce Department showed, stoking worries that robust consumption combined with a higher-than-expected reading on consumer prices Tuesday may keep the Federal Reserve on a hawkish track.
The government said retail sales rose 3%, the largest one-month jump since March 2021 and well above Bloomberg estimates of 1.9%.
"After a disappointing December, a jump in retail sales indicate that the lasting inflation we have experienced isn’t holding back the consumer," Mike Loewengart, head of model portfolio construction at Morgan Stanley's Global Investment Office, said in a note. "Expect some volatility in the near-term as investors mull over the Fed’s next steps and what, if anything, could lead it to cut rates in the calendar year."
On the corporate side, investors were parsing through more earnings reports this week. Airbnb (ABNB) was in the spotlight after the lodging company reported record sales in the fourth quarter, notching its first profitable year in 2022. Executives also unveiled a better-than-expected forecast for the current quarter, citing strong post-pandemic travel demand. Shares soared 13.4% Wednesday.
Tesla's (TSLA) stock advanced 2.4% after chief executive Elon Musk said he plans to appoint a new CEO to Twitter, the social media platform he acquired last year, by the end of the year.
Separately, Bloomberg News reported Wednesday that the electric vehicle maker is expected to partially pause production at its China factory for upgrades to the facility to make a refreshed version of its Model 3 car.
Devon Energy Corporation (DVN) shares plunged 10.5% after the company said fourth-quarter profit was dented by the impact of Winter Storm Elliot on its oil and gas wells.
NEW YORK, NEW YORK - FEBRUARY 14: People walk by the New York Stock Exchange (NYSE) on February 14, 2023 in New York City. (Photo by Spencer Platt/Getty Images)
In other areas of the market, bond yields moved higher Wednesday, with the rate-sensitive two-year Treasury yield approaching the highest level since November, according to Bloomberg data. The U.S. dollar index also climbed against other currencies.
Meanwhile, in commodities markets, oil continued to barrel lower as the dollar rose and U.S. stockpiles were estimated to have grown. West Texas Intermediate (WTI) crude futures, the U.S. benchmark, fell around 1% Wednesday to trade near $78.
Following the release, several Fed officials indicated interest rates would need to go higher. On Tuesday, Dallas Fed President Lorie Logan said in remarks at Prairie View A&M University in Texas that the U.S. central bank "must remain prepared to continue rate increases for a longer period than previously anticipated."
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CPI rose 0.5% in the first month of the year, an acceleration from the prior month, and 6.4% on an annual basis, a small move lower from the previous year-over-year print. Core CPI, which strips out the volatile food and energy components of the report, climbed 0.4% over the prior month and 5.6% year-over-year, also higher than forecast.
"There are more and more signs of the market pricing the no landing scenario where the economy remains strong, and inflation remains sticky and persistent," Apollo Global Management chief economist Torsten Slok said in a Wednesday note, adding that one-year breakeven inflation expectations are approaching 3%, spurred higher by strong January employment data and Tuesday's CPI report.
"In response to this, the Fed will have to be more hawkish to ensure that inflation expectations do not drift too far away from the FOMC’s 2% inflation target," Slok added.