Stocks ended mixed Thursday after December's inflation numbers came in hotter than expected.
The Dow Jones Industrial Average edged up about 0.04% to 37,711, while the S&P 500 slipped 0.07% and the tech-heavy Nasdaq was essentially flat at the close.
Inflation ticked higher in December, even as gas prices fell nearly 5.5%, as a big jump in housing prices and airfares lifted the headline CPI reading to 3.4%.
Bill Adams, chief economist for Comerica Bank, said “the big picture is that the economic dislocations caused by the pandemic are fading, economic growth is settling into a more normal pace, and labor shortages are much less of an issue, helping bring inflation back to normal.”
"Slower trend inflation is clearing a path for the Fed to begin lowering U.S. interest rates," Adams said. "Financial markets price in high odds of the Fed beginning to cut the federal funds rate as early as March. Comerica thinks the Fed will likely go slower than financial markets price in."
He added that the Fed "got burned by underestimating the intensity of inflation’s surge over the last few years, and they would rather overcorrect and keep rates high for longer than necessary than cut too early and allow inflation to rebound."
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Updated at 1:11 PM EST
Long bond sale
The Treasury sold $21 billion in re-opened 30-year bonds, the last of three coupon auctions totaling $108 billion this week, with investors pulling back from the longer-dated paper after today's hotter-than-expected inflation report.
Investors bid just under $50 billion for the overall sale, down around $2 billion from the last auction in December, with indirect bidders (which are mostly foreign central banks) taking up 67.8% of the sale, down from 68.5% last month.
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Updated at 11:23 AM EST
Deeper Declines
Stocks are now testing session lows heading into mid-day, with the S&P 500 down 38 points, or 0.8%, and the Dow slumping around 245 points. The Nasdaq, meanwhile, was last seen at 0.93%, or 138 points.
In the bond market, benchmark 10-year notes were last seen modestly higher at 4.038% ahead of today's $21 billion auction of 30-year bonds, with 2-yeat notes pegged at 4.335%.
Updated at 10:15 AM EST
Sliding scale
Stocks are extending their opening bell dip into the first hour of trading following the modestly hotter-than-expected December inflation report. and another tick lower in weekly jobless claims.
The S&P 500, which flirted with positive territory for the year prior to the release, was last marked 28 points lower, or 0.6%, while the Dow slumped 219 points. Meanwhile, the Nasdaq fell 85 points, or 0.57%.
"Investors may want to keep in mind that, right or wrong, the Fed has done what it said it would do over the past couple of years," said Chris Larkin, managing director for trading and investing at E*trade from Morgan Stanley.
"And their current mantra is that they’re willing to keep rates high, or raise them again, if inflation heats up too much," he added. "Today’s numbers showed inflation is stronger than expected, and the labor market still appears to be solid. If nothing else, this type of data won’t nudge the Fed to move any faster on rate cuts."
Updated at 8:50 AM EST
Inflation surprise
Inflation ticked higher in December, even as gas prices fell nearly 5.5%, as a big jump in housing prices and airfares lifted the headline CPI reading to 3.4%.
Stocks pared earlier gains following the release, with futures tied to the S&P 500 indicating a 4 point opening bell dip and those tied to the Dow suggesting a 30 point pullback. The Nasdaq is called 1 point higher.
Related: Inflation ticks higher in December, testing Wall Street's Fed rate-cut bets
Stock Market Today
Stocks look poised for a sharp reaction to today's December consumer-price report, which is expected to show a modest uptick in headline price pressure but another downturn in the core reading, which strips out food and energy components.
The Federal Reserve has said it tracks core inflation pressures as part of its price-stability mandate, and the year-on-year gains remain nearly double its preferred target of 2%.
New York Fed President John Williams, in fact, told an event in the city last night that he and his colleagues need to see more data in order to find conviction that inflation is in full retreat.
“I expect that we will need to maintain a restrictive stance of policy for some time to fully achieve our goals, and it will only be appropriate to dial back the degree of policy restraint when we are confident that inflation is moving toward 2% on a sustained basis,” he said.
Benchmark 10-year Treasury bond yields slipped below 4% in overnight dealing ahead of today's inflation print, helped in part by a solid, but by no means spectacular, auction of $37 billion in new paper on Wednesday.
The Treasury will also auction another $21 billion in 30-year bonds later today, wrapping up a full week of $108 billion in coupon sales.
The U.S. dollar index, meanwhile, was marked 0.12% lower against a basket of its global peers at 102.238 heading into the start of trading in New York.
Bitcoin prices were also in focus after the Securities and Exchange Commission confirmed its approval for listings of around a dozen exchange traded funds that will directly hold the world's biggest cryptocurrency.
Around a dozen companies, including Franklin Templeton, Fidelity, Ark21, a unit of Cathie Wood's Ark Investment, WisdomTree and Invesco all had filed requests with the SEC for approval to list their individual ETFs.
Depending on customer demand, the bitcoin purchases required to match the money invested in each ETF should provide a significant boost to overall bitcoin prices, as well as to other digital assets in the global cryptocurrency market.
Bitcoin prices were marked around 1% higher on the session following the SEC decision and were changing hands at $47,127 each, extending a surge of around 70% since mid-October.
On Wall Street, stock futures tied to the S&P 500, which is down 0.28% for the year, are indicating a 3 point opening-bell gain while those linked to the Dow Jones Industrial Average are indicating a 23 point dip
The tech-focused Nasdaq, meanwhile, is called 65 points higher and could edge into positive territory for the year at the start of trading.
In overseas markets, Japan's Nikkei 225 extended its recent run of gains, rising 1.77% on the session to close above the 35,000-point level for the first time since 1990, marking a fresh 34-year high for the Asia-based benchmark.
In Europe, the Stoxx 600 was marked 0.2% higher in early Frankfurt trading while Britain's FTSE 100 slipped 0.13%.
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