Wall Street shambled through another uncertain session on Wednesday, as investors continued to speculate about the future of interest rate policy following another stronger-than-expected economic report. A late-date updraft allowed the major U.S. equity averages to finish the day slightly higher, following a mixed performance the previous day.
The Nasdaq Composite (COMP.IND) closed +0.9%, the S&P 500 (SP500) ended +0.3% and the Dow (DJI) finished +0.1%.
After showing losses through much of the day, the Dow Jones sprinted across the flat line just before the close to record a gain of 38.78 points and finish at 34,128.05. Meanwhile, the S&P 500 rose 11.47 points to end at 4,147.60 and the Nasdaq climbed 110.45 points to conclude trading at 12,070.59.
Nine of the 11 S&P sectors posted advances, led by greater-than-1% gains from Communication Services and Consumer Discretionary. Energy slumped 1.8%, while Health Care posted a modest decline.
“After seeing markets down slightly earlier in the day, we experienced some strengthening as markets neared close,” analyst Daniel Jones told Seeking Alpha, explaining that the late-day optimism likely stemmed from hope that the retail sales statistics and recent corporate results pointed to a better chance of a soft landing.
“Having said that, the inflation data itself is proof that we are walking something of a tightrope,” Jones added. “This should cause investors to keep a close eye on the entirety of the picture over the next few months. One wrong slip and market downside could be significant. On the other hand, you don’t want to miss a great opportunity for upside.”
Investors digested the latest data on retail sales, which came in stronger than expected in January. The numbers showed a 3% increase for the month, compared to a 1.1% dip in December. The figure came in above the 1.7% advance that economists were predicting.
Robust retail sales pointed to a resilient consumer, the latest in a string of unexpectedly sturdy economic reports. This trend included the recent jobs report, which showed a larger-than-expected increase in payrolls for January.
Combined with Tuesday’s hotter-than-expected consumer price index, the strong economic statistics suggest the Federal Reserve could need to continue its hawkish policy longer than previously expected, in order to get inflation under control. On the other hand, the economy’s ability to withstand higher interest rates could raise the chances that a deep recession can be avoided.
Markets are now pricing in a 12% chance that the central bank will raise rates by 50 basis points at its March meeting. This is up from 9% a day ago.
The chance of a 25-basis-point increase is estimated at 88%, with the likelihood that the Fed will halt its hikes now off the table. As of a month ago, the markets priced in a 16% possibility that the March meeting would see no rate increase.
Looking at bond trading, yields pushed slightly higher. The 10-year Treasury yield (US10Y) climbed 5 basis points to 3.81%, while the 2-year yield (US2Y) edged up 1 basis point to 4.63%.
Among active stocks, Roblox (RBLX) surged after the video game platform revealed better-than-expected bookings data for Q4.