Stocks finished higher again on Tuesday, as relatively tame consumer inflation data prompted an early buying spree. However, the major U.S. equity averages ended well off their highs for the day, as investors feared taking big bets ahead of Wednesday’s Federal Reserve announcement.
The Nasdaq jumped almost 4% in the early stages of the session before eventually finished the day with an advance of 1%. The S&P 500 and Dow posted modest gains.
The Nasdaq Composite (COMP.IND) closed +1.0%, the S&P 500 (SP500) finished +0.7% and the Dow (DJI) ended +0.3%.
“Stocks moved mostly higher as the November CPI came in cooler than expected. The Fed will likely increase the Fed Funds Rate by 50 basis points at Wednesday’s final FOMC meeting of 2022,” analyst Andrew Hecht told Seeking Alpha.
Hecht added: “Tomorrow’s FOMC meeting is the final significant event before the holidays; expect lots of volatility after the Fed’s statement and Chairman Powell’s press conference.”
The release of cooler-than-expected data for consumer inflation prompted a wave of buying early in the session, building on an advance posted the previous day. However, the early enthusiasm evaporated as the day wore on, as investors looked ahead to a key Fed decision set for Wednesday.
The consumer price index climbed 0.1% in November compared to the previous month, a more modest increase than the 0.3% rise economists had predicted. This was also down from a 0.4% climb in the previous month.
Compared with last year, CPI growth moderated to 7.1% in November, after an increase of 7.7% in the previous month. Economists were looking for a 7.3% advance. Core prices, which exclude the volatile food and energy sectors, rose 6% compared 6.3% in the previous month.
With the softer CPI data, the market is currently pricing in a 79% chance that the Fed will raise it key rate by 50 basis points. The central bank has hiked rates by 75 basis points at each of the last four meetings.
Looking to fixed income, the CPI data prompted buying in the bond market, sending yields sharply lower. The 10-year Treasury yield (US10Y) dropped 9 basis points to 3.52% and the 2-year yield (US2Y) rose 16 basis points to 4.24%.
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