Dow rises 171 points, S&P 500 closes shy of record high ahead of inflation report

U.S. stocks finished higher on Wednesday, a day ahead of a widely anticipated December inflation report, though the S&P 500 fell short of an all-time high after remarks from a key Federal Reserve policymaker.

How stock indexes traded

The S&P 500
SPX
rose 26.95 points, or 0.57%, to 4,783.45. That’s 13 points shy of its record closing high of 4,796.56, reached in January 2022.
The Dow Jones Industrial Average
DJIA
climbed 170.57 points, or 0.45%, to 37,695.73. Wednesday’s closing level was the third-highest in the history of the index, according to Dow Jones Market Data.
The Nasdaq Composite
COMP
gained 111.94 points, or 0.75%, to reach 14,969.65. It was the fourth straight day of gains for the tech-heavy index.

On Tuesday, the Dow Jones fell 0.4% to 37,525.16, while the S&P 500 declined 0.2% to 4,756.50, and the Nasdaq Composite gained less than 0.1% to end at 14,857.71.

What drove markets

Inflation, along with its impact on bond markets and the Federal Reserve’s monetary-policy trajectory, is the primary issue at hand this week as investors await Thursday’s consumer-price index reading for December.

Also in focus is Friday’s high-profile corporate earnings reports — with major banks JPMorgan Chase & Co.
JPM,
-0.12%,
Bank of America Corp.
BAC,
+1.02%,
Citigroup Inc.
C,
+2.56%,
and Wells Fargo & Co.
WFC,
+0.85%
all reporting fourth-quarter results.

“The market is hopeful for continued progress on disinflation, but those are the optimists and that’s the soft-landing story,” said Nanette Abuhoff Jacobson, a Boston-based global investment strategist for Hartford Funds, which managed $123.2 billion in assets as of September.

The market’s shaky beginning to the new year — with all three major stock indexes little changed since Jan. 2 — “is reflecting concern that inflation won’t deliver to market expectations, which is for the Fed to cut five or six times this year,” she said via phone. “We would get five or six cuts if it looked like recession fears were reigniting, and so this idea that the Fed is going to deliver these five or six cuts in a perfectly benign environment is optimistic.”

Separately on Wednesday, New York Fed President John Williams, speaking during the final hour of trading, said interest rates will likely need to stay high “for some time” until policymakers are confident about inflation returning to 2%.

On Wednesday, the S&P 500 finished at its highest level since Jan. 4, 2022, after having rallied over the past few months. Contributing to its rise has been the hope that easing inflation will allow the central bank to lower interest rates sooner and faster than the markets previously anticipated.

The yield on the 10-year Treasury note
BX:TMUBMUSD10Y,
the benchmark for borrowing costs, has fallen from 5% in October to 4.029% on Wednesday.

For the market’s bullish narrative to persist, inflation must continue to fall back toward the Fed’s 2% target, emphasizing the importance of December’s CPI figures, which will be published at 8:30 a.m. Eastern time on Thursday.

See: These traders bet on surprise blip higher in key December inflation reading

Economists expect annual headline CPI inflation to inch up to 3.2% last month from 3.1% in November. The core reading, which strips out more volatile items like food and energy, is expected to fall to 3.8% year-over-year, from 4% previously.

Adam Phillips, the California-based director of portfolio strategy at EP Wealth Advisors, said the CPI report may give investors enough confidence that disinflation is likely to continue, even if price levels are “still a very long way from anything that is considered healthy.”

However, the economy has certain factors that are beyond the Fed’s control, such as volatility in supply chains, growing geopolitical risks and a potential resurgence in inflation, Phillips told MarketWatch via phone on Wednesday.

In U.S. economic data, wholesale inventories declined 0.2% in November, according to the Commerce Department.

Companies in focus

Shares of Boeing Co.
BA,
-0.04%
closed up by 0.9% on Wednesday. Chief executive David Calhoun told employees on Tuesday that the airplane manufacturer needed to acknowledge its mistakes after a panel blew off a 737 Max 9 jet flown by Alaska Airlines days earlier, and approach the matter with “complete transparency.”
Crypto-related stocks finished lower a day after Securities and Exchange Commission Chair Gary Gensler denied that the agency had approved spot bitcoin ETFs. Shares of Coinbase Global Inc.
COIN,
+2.77%
ended down by 0.5%, while MicroStrategy Inc.
MSTR,
-2.25%
closed down by 2%. Bitcoin
BTCUSD,
-2.68%
dropped below $44,500 before rebounding to $45,914 on Wednesday.
Shares of Intuitive Surgical Inc.
ISRG,
+0.26%
ended up by 10.3% for a fourth day of gains in the past five sessions. The maker of robotic surgical equipment said it expects fourth-quarter sales that were above Wall Street’s expectations, aided by a recovery in China.