US Market Ends Higher After Positive Retail Sales Data
The US stock market ended higher on Wednesday after the Commerce Department reported that retail sales surged 3% in January, well past the 1.8% estimate from economists. This data offered evidence of resilience in the US economy, but gains were capped as investors worried about more interest rate hikes by the Federal Reserve in the months ahead.
Fueled by a rebound in growth stocks that were hammered in last year's stock market downturn, the S&P 500 and Nasdaq have recovered 8% and 15%, respectively. A better-than-expected quarterly earnings season has provided cautious optimism, with more than half of all S&P 500 companies having reported earnings and nearly 70% of those topping profit expectations.
Apple, Alphabet, Amazon and Tesla rose between 1.4% and 2.4%, driving gains in the S&P 500 and Nasdaq. The S&P 500 climbed 0.28% to end the session at 4,147.61 points, while the Nasdaq gained 0.9%.
Stock Market Reacts to Strong Consumer Data
The Dow Jones Industrial Average rose 0.1%, or 39 points, the Nasdaq was up 0.92%, and the S&P 500 gained 0.28% on Wednesday, as investors reacted to strong consumer data. Retail sales rose 3% last month, beating economists’ forecast for a 1.8% increase, and the retail sales control group – which is filtered into U.S. GDP – climbed 1.7 %, well above forecasts for a 0.8% rise. This strong consumer data, which makes up about two-thirds of economic growth, added to fears about a more aggressive Federal Reserve, causing Treasury yields to retreat and supporting growth sectors of the market.
Tech stocks were the big gainers, with Apple (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOGL) leading the way. Analog Devices (NASDAQ:ADI) jumped 7% to a 52-week high after reporting quarterly results that topped Wall Street estimates on both the top and bottom lines. Roblox (NYSE:RBLX) surged 26% as the video game company reported better-than-expected fourth-quarter results, driven by a jump in bookings. Airbnb (NASDAQ:ABNB) also delivered upbeat guidance after quarterly results beat estimates on both the top and bottom lines as a healthy demand for travel underlined the recovery in the travel sector.
U.S. CPI Prompts Fed Peak Reset, Buffett Takes Another Bite of Apple
The U.S. consumer price index (CPI) rose 6.4% on the year in January, higher than the expected 6.2%, prompting the Federal Reserve to keep hiking interest rates in the near term. This has caused the market to shift higher its estimate of what level the U.S. central bank ends its series of interest rate hikes. Meanwhile, Warren Buffett has expanded his stake in Apple (NASDAQ:AAPL), with the sage of Omaha's investment vehicle, Berkshire Hathaway, buying an additional 75 million shares in the iPhone maker.
The CPI reading gives the Federal Reserve more impetus to keep hiking interest rates in the near term, with New York Federal Reserve President John Williams saying that a federal funds rate this year of between 5.00% and 5.25% "seems a very reasonable view". Richmond Fed President Thomas Barkin and Federal Reserve Bank of Dallas President Lorie Logan also noted that "if inflation persists at levels well above our target, maybe we’ll have to do more" and "we must remain prepared to continue rate increases for a longer period than previously anticipated".
The news of Buffett's increased stake in Apple has been seen as a positive sign for the company, with the Berkshire Hathaway CEO having a long history of successful investments. Apple's stock rose 1.39% in premarket trading on Wednesday.
Dollar Jumps to Six-Week Highs on Strong Economic Data
The U.S. dollar index jumped to 103.785, its highest level since Jan.6, on Wednesday due to a string of data pointing to a stronger economy. This has driven up bets on Federal Reserve rate hikes, steadying the greenback and paving the way for gains in the coming months. Retail sales rose 3% last month, beating economists’ forecast for a 1.8% increase, and the retail sales control group – which is filtered into U.S. GDP – climbed 1.7 %, well above forecasts for a 0.8% rise.
The likely strength in the dollar would be supported by risk aversion returning to asset markets and improved yield differentials between the U.S. and other markets. Fed Funds futures are now pricing in 68bp of extra hikes, having added around 7bp in price after the inflation release.
Chief Market Strategist David Keller at StockCharts told Investing.com in an interview on Wednesday that a higher low would be the most compelling reversal in the dollar, meaning instead of the dollar just making lower lows, which is what happened for the past few months.
Oil Futures Flat to Lower as Dollar Strengthens and Interest Rates Rise
Oil futures were flat to lower on Wednesday as the U.S. dollar strengthened and investors worried that rising interest rates would slow the economy and cut fuel demand. Brent futures slid 20 cents, or 0.2%, to $85.38 a barrel, while U.S. West Texas Intermediate (WTI) crude fell 47 cents, or 0.6%, to $78.59. The U.S. dollar rose to a near six-week high against a currency basket on strong U.S. retail sales data last month and recent U.S. inflation data, suggesting the Federal Reserve (Fed) will keep monetary policy tight. Federal Reserve officials said the U.S. central bank will need to maintain gradual interest rate increases to fight inflation. Investors worry higher rates could slow the economy. U.S. crude stockpiles jumped by 16.3 million barrels last week to 471.4 million barrels, their highest since June 2021, the U.S. Energy Information Administration (EIA) said. But analysts said an unusually large crude oil supply adjustment contributed to the outsized build.
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