Stocks rise, Nasdaq gains for third straight day despite red-hot inflation report

U.S. stocks moved slightly higher Wednesday after a key inflation report showed a historic gain but largely matched expectations.

The S&P 500 added roughly 0.28% to 4,726.35, and the Nasdaq Composite rose 0.23% to 15,188.39 for its third straight positive day. The Dow Jones Industrial Average, which shuffled between modest gains and losses through the session, finished with a gain of 38.3 points, or 0.11%, at 36,290.32.

The moves come after the December reading for the consumer price index, a gauge of prices across a broad spectrum of goods, showed a gain of 7% year over year. That is the biggest jump since 1982, but was in line with expectations from economists surveyed by Dow Jones. The monthly increase was slightly hotter than expected.

However, interest rates already moved sharply higher in the first week of 2022, sparking a sell-off in tech stocks. That suggests the hot inflation report, and future tightening by the Federal Reserve, may be at least partially priced in to the market.

"We've been saying for a while that we didn't expect the peak in one-year inflation numbers until early 2022 and further supply chain disruptions from the omicron variant strengthen that case. But the more important question right now is the exact timing of when inflation might start to slow, since ultimately that will likely determine how aggressive the Federal Reserve ... will be," LPL Financial asset allocation strategist Barry Gilbert said in a note.

Stocks tied to economic growth were some of the stronger performers, with chemical company Mosaic rising 3.8% and Freeport-McMoRan jumping 5%. Software giant Microsoft and Google-parent Alphabet each added about 1%, while Tesla gained nearly 4%.

On the downside, Biogen shares tumbled 6.7% following news that Medicare will only cover the cost for the company's Alzheimer's drug Aduhelm for patients with early-stage symptoms who are enrolled in clinical trials. Health care was a weak spot for the market overall, with Merck and Amgen both weighing on the Dow.

Wednesday's moves continued a bounce-back week for equities, with tech stocks in particular clawing back sharp losses from the first week of the year that were accompanied by a jump in interest rates. Last week's decline brought parts of the market close to key technical levels closely watched by Wall Street pros.

"The Nasdaq went down and bounced off of the moving 200-day moving average on Monday, and that's kind of been where this rally sort of began," said Randy Frederick, managing director of trading and derivatives at the Schwab Center for Financial Research.

Bond yields, which spiked to start 2022, appear to have stabilized, with the 10-year Treasury yield slipping to 1.73% on Wednesday after topping the 1.8% level earlier in the week.

Though CPI is not the Federal Reserve's primary inflation gauge, policymakers are watching a variety of measures as they embark on the first stages to tightening the most accommodative policy measures in the central bank's history. Fed Chairman Jerome Powell told Senate lawmakers Tuesday that he expects interest rate increases this year along with the end of the monthly bond-buying program in March and a reduction in asset holdings.

Meanwhile, big banks will kick off the fourth-quarter earnings season on Friday. JPMorgan Chase, Citigroup and Wells Fargo are slated to release quarterly results before the bell.