U.S. stocks edged higher early Friday, as investors continued to react to Thursday’s inflation data showing the fastest rise in 40 years.
What’s happening
- The Dow Jones Industrial Average DJIA, +0.32% was up 183 points, or 0.5%, at 35,427.
- The S&P 500 SPX, +0.17% rose 18 points, or 0.4% to 4,523.
- The Nasdaq Composite COMP, -0.03% was up 50 points, or 0.4%, to 14,236.
On Thursday, the Dow Jones Industrial Average DJIA, +0.32% fell 526 points, or 1.5%, while the S&P 500 dropped 1.8% and the Nasdaq Composite COMP, -0.03% dropped 2.1%.
What’s driving markets
Thursday’s dramatic developments were still driving the action. The Labor Department reported that consumer prices jumped 7.5% in the 12 months ending January, as St. Louis Fed President James Bullard talked about his willingness for the central bank to start with a 50-basis point hike in March — or possibly even a rate hike before its next scheduled meeting.
That lifted the 2-year Treasury yield TMUBMUSD02Y, 1.548% by 21 basis points — the largest single-day rise since June 5, 2009.
Other Fed speakers on Thursday played down the prospect of a half-point hike. Richmond Fed President Tom Barkin said he was open to the concept, but questioned whether there was a “screaming need” to do it. “I would have to be convinced on that,” he said at an event, according to Reuters. San Francisco Fed President Mary Daly was quoted as telling Market News International that a half-point move wasn’t her preference.
Some market watchers argued that the market reaction to the inflation data and to Bullard’s comments might have ben overdone.
See: A ‘firestorm’ of hawkish Fed speculation erupts following strong U.S. inflation reading
“The market tends to discount the most hawkish FOMC (Federal Open Market Committee) member in a rising rate environment, but policy is ultimately likely to reflect the median of the whole policy-setting committee,” said Alex Pelle, U.S. economist at Mizuho Securities, in a note.
“The FOMC is likely to seek consensus — both formally and informally — as it lifts rates for the first time in several years. High inflation will weigh on some policy makers’ views, but a flatter curve will give many other policy makers pause, too,” he said.
Jim Reid, a strategist at Deutsche Bank, says it might be increasingly difficult for the U.S. economy to avoid falling into recession.
“With the surging U.S. CPI print yesterday the risks have to be skewed toward the U.S. curve inverting even earlier than that and starting the countdown clock earlier,” he said.
The University of Michigan’s consumer sentiment index for February is due for release at 10 a.m. Eastern, and will include a look at five-year inflation expectations.
Companies in focus
- Under Armour Inc. UAA, -9.32% reported earnings and revenue that topped expectations. Shares of the athletic-apparel company fell 7%.
- Shares of Goodyear Tire & Rubber Co. GT, -18.54% jumped 7% after reporting a much stronger-than-expected rise in profits.
