U.S. stocks jumped on Wednesday after a report showed tame inflation, easing worries about rising prices that have jolted yields higher and unnerved equity investors.
The Dow Jones Industrial Average last traded up 420 points to hit an intraday record high. The S&P 500 added 0.7%, led by energy and cyclicals. The Nasdaq Composite traded flat after gaining as much as 1.6% earlier. The tech-heavy benchmark enjoyed a 3.7% rally in the previous session for its best day since November.
Data out Wednesday showed that consumer prices increased 0.4% in February, matching expectations from economists polled by Dow Jones. The Consumer Price Index gained 1.7% on a year-over-year basis, also in line with estimates.
“The biggest concern that markets have had over the last month or so has been inflation running hotter than we estimate, clearly CPI puts that to rest, at least for today,” said Art Hogan of National Securities. “The yield on the 10-year has ceased going parabolic.”
The widely watched 10-year Treasury auction of $38 billion in notes Wednesday was met with adequate demand. The result eased concern among traders that the country’s growing debt burden would be too much for the market to bear, which would hit bond demand and force yields even higher. The 10-year yield remained slightly lower at 1.51% following the auction.
Cyclical stocks, or those most sensitive to an economic rebound, led the gains, resuming the trend seen in the past few weeks. The S&P 500 energy sector jumped 1.9% Wednesday, bringing its 2021 gains to more than 38%. Industrials, materials, and financials all advanced more than 1%.
Meanwhile, the comeback rally in high-growth tech stocks took a breather after the massive snapback in the previous session. Tesla dipped 1% after surging 10% for its best day in more than a year. Cathie Wood’s flagship active Ark Innovation fund (ARKK) traded flat following its biggest one-day gain ever.
Higher rates have raised concerns about valuations for tech stocks. The tech-heavy Nasdaq had fallen into correction territory on Monday, or down more than 10% from its recent high.
House Democrats are on track to pass the $1.9 trillion stimulus bill Wednesday. President Joe Biden is expected to sign the bill this weekend and checks of up to $1,400 should start going out this month.
The anticipated stimulus and rise in rates has divided the market recently, largely favoring stocks leveraged to a recovering economy over the tech and growth stocks that led during the pandemic.
UBS turned more bullish on stocks for the year with incoming stimulus and pent-up consumer spending. The Wall Street firm hiked its year-end S&P 500 target to 4,250 from 4,100 on Tuesday, representing a near 9% gain from here.
— CNBC’s Patti Domm contributed reporting.