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S&P 500 Takes Red-Hot Inflation in Stride as Materials, Tech Shine

By Yasin Ebrahim – The S&P 500 closed higher Wednesday, as data showing inflation hitting the fastest pace in decades, which was largely expected, failed to spook investors.

S&P 500 rose 0.3%, the Dow Jones Industrial Average gained 0.1%, or 39 points, the Nasdaq added 0.2%.

The consumer price index rose 0.6% in December, just above expectations for a 0.5% increase, taking the year-on-year consumer prices through December to 7%, in-line with expectations and the fastest rate since 1982.

A deeper look into the report, however, showed sticker areas of price pressures, particularly from the services sector, rose by less than expected, stoking early hopes that inflation may cool in the months ahead.

“[C]ore services rose by just 0.3%, the slowest since September. Housing inflation did not accelerate as we expected, and price increases slowed in travel categories,” {{Jefferies said in a note}}.

But even if price pressure ease in “three months, or six months from now that’s not going to move the dial in time for the Fed to start making changes to how they're thinking about tapering or rate hikes,” Johan Grahn, head of ETF Strategy at Allianz (DE:ALVG) told in an interview on Wednesday.

Following the inflation report, Treasury yields continued to slip, with the 10-year backing further away from 1.8%, paving the way for an ongoing recovery in tech.

Big tech was mostly higher, led by Alphabet (NASDAQ:GOOGL), though Meta Platforms (NASDAQ:FB) was the exception, down about 0.3%.

Tesla (NASDAQ:TSLA), meanwhile, jumped about 4% a day after receiving a price upgrade from Morgan Stanley to $1,300 per share from $1,200.

A fall in health care kept a lid on gains in the broader market following a more than 7% slump in Biogen (NASDAQ:BIIB) after Medicare said it planned to only cover the company’s Alzheimer's drug, Aduhelm, for patients enrolled in approved clinical trials.

PayPal (NASDAQ:PYPL), meanwhile, slipped 2% after {{0|Jefferies downgraded the company to a hold from buy and cut its price target on the stock to $200 From $255, citing a cautious fundamental backdrop in 2022.

Energy was flat even as oil prices neared two-month highs following a larger-than-expected draw in weekly crude inventories. Energy prices will likely "continue to surge- as demand from economic reopening and reflation collides with a cold snap and tight supply in the Northeast region," Janney Montgomery Scott said in a note. "We remain bullish on crude oil prices- and expect targets toward the $85-90 range in 2022."

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