Stocks rose Tuesday after the release of new U.S. inflation data, while traders awaited a key Federal Reserve policy decision.
The Dow Jones Industrial Average climbed 103.60 points, or 0.3%, to 34,108.64. The S&P 500 added 0.73% to 4,019.65. The Nasdaq Composite rose 1.01% to 11,256.81.
Earlier in the session, the Dow was up as much as 707.24 points, or 2.08%. The S&P 500 advanced 2.77%, while the Nasdaq gained 3.84%.
Stocks initially rallied after the consumer price index showed an increase of just 0.1% from the previous month, and a gain of 7.1% from a year ago, the Labor Department reported Tuesday. Economists surveyed by Dow Jones had been expecting a 0.3% monthly increase and a 7.3% rise over the past 12 months. Excluding volatile food and energy prices, so-called core CPI rose 0.2% on the month and 6% on an annual basis, compared to respective estimates of 0.3% and 6.1%.
However, major indexes came off their best levels as the day continued.
Investors are anticipating the Federal Reserve's next rate-hiking decision at the conclusion of its two-day policy meeting on Wednesday. Traders are largely pricing in a 50-basis point increase, a slight decline from the previous four hikes. (One basis point equals 0.01%.)
"While the inputs of inflation coming into that Fed meeting are modestly better, we still don't know for sure if the Fed's going to raise by 50 basis points, if they're going to raise their terminal rate. So, we have quickly shifted gears into a mode of 'wait and see' for the Fed meeting tomorrow," said Art Hogan, chief market strategist at B. Riley Wealth.
The 10-year Treasury yield slipped after the CPI report and touched a low of 3.421%. Energy stocks led the gains, with shares of Chevron the leading outperformer in the Dow.
Tech stocks that have been hit the hardest from rising inflation and rates in 2022, also rose. Shares of Meta and Google-parent Alphabet were up 4.7% and about 2.5%, respectively.
Stocks rose for a second day Tuesday after the release of new U.S. inflation data, while traders awaited a key Federal Reserve policy decision.
The Dow Jones Industrial Average climbed 103.6 points, or 0.3%, to 34,108.64. The S&P 500 added 0.73% to 4,019.65. The Nasdaq Composite rose 1.01% to 11,256.81.
Earlier in the session, the Dow was up more than 700 points, or 2.08%. The S&P 500 advanced 2.77%, while the Nasdaq gained 3.84%.
— Sarah Min
BTIG's Jonathan Krinsky expects Tuesday's "gap" will be filled.
A gap occurs when a stock or index suddenly moves up or down typically on catalysts outside of trading hours. These gaps can "fill" when the price moves back to the pre-gap level.
"When there is market moving data, whether a single stock's earnings release, or a macro report like CPI, it's always the market's reaction to the initial reaction that is most important," Krinsky wrote in a Tuesday note.
Stocks pared their gains after an initial rally following a lighter-than-expected inflation report. The Dow Jones Industrial Average was last up 138 points, or 0.41%. The S&P 500 added 0.86%, while the Nasdaq Composite rose 1.22%.
Earlier in the day, the Dow was up more than 700 points. At session highs, the S&P 500 and Nasdaq Composite were up 2.77% and 3.84%, respectively.
"[So] far the high of the day in futures came right around 8:30. This also leaves a massive gap on the chart in SPY. Not all gaps get filled, but most do," Krinsky wrote. "To be fair, there are also unfilled gaps above from August at 425.50 and 421.22. Eventually those are likely to get filled, but our thinking is today's gap gets filled first."
— Sarah Min
Investors cheered November's CPI report, which came in cooler than expected, signaling that the persistent inflation the U.S. has been dealing with has likely peaked.
High inflation and subsequent interest rate hikes from the Federal Reserve have weighed on stocks. As inflation cools, however, some stocks will be poised to gain more than others, according to an inflation analysis from Bank of America.
CNBC Pro subscribers can read more here.
—Carmen Reinicke
The Federal Reserve is looking at the wrong housing figures, according to Jeremy Siegel, professor of finance at the University of Pennsylvania's Wharton School of Business.
"If the Fed stops looking at stale housing data — and I don't know why they don't —they would actually realize that inflation is, as I said a month ago, over," he told CNBC's "Halftime Report" on Tuesday. "Now, whether they recognize that, I don't really know. I already think they're in overly restrictive territory."
Elevated housing and shelter prices have contributed heavily to recent inflation data and remain one of the largest spending areas for consumers. Shelter data from the November CPI report, which makes up a large chunk of the "core" number, rose by 0.6%.
According to Siegel, that shelter number is "nonsensical" and "bogus," given that other housing indexes and data show a decline. Inflation for housing, he added, is probably much lower than the Fed thinks.
"It's negative now, it will be negative next month, and it's actually been negative for the last two months," he said.
Siegel expects a 50 basis point hike this month from the central bank, although data next year should prompt a halt in hikes.
— Samantha Subin
Check out the stocks making the biggest moves in midday trading:
— Alex Harring
Airline stocks were under pressure on Tuesday, with the U.S. Global Jets ETF falling 2.9%.
The declines came after Jetblue said in a securities filing that "the adverse impact of the fourth quarter holiday calendar timing is greater than previously forecasted." The airline said it expects revenue per available seat mile for the quarter to be at the low end of prior guidance.
Shares of JetBlue fell more than 8%. United Airlines dropped more than 6%, and American Airlines shed 5.7%.
— Jesse Pound
Chaos within crypto will weigh on Robinhood stock, according to Citi.
Analyst Christopher Allen downgraded the stock to neutral from buy and cut his price target by $1 to $10, which implies a 4.4% increase over where it closed Monday.
"In our view, HOOD has done a lot to right its ship recently, including materially lowering the cost base, improving active trader offerings, and rolling out attractive products," he said in a Monday note to clients. "However, we see a mixed outlook from here given potential headline risk from upcoming SEC market structure proposals, a cautious equity market outlook, and potential fallout from FTX impacting crypto trading revenues and the customer base."
CNBC Pro subscribers can read more about why crypto will impact the trading platform's shares here.
— Alex Harring
Citi's Scott Chronert raised his 2023 year-end target for the S&P 500, saying investors should identify buying opportunities in the first half of next year.
The U.S. equity strategist at Citi raised his 2023 year-end S&P 500 target to 4,000, up from 3,900, implying roughly flat performance for the broader market index. Meanwhile, he lowered his midyear 2023 target to 3,700 from 3800.
"We look for index weakness early in the year as a buying opportunity," Chronert wrote in a Monday note. "While our year-end 2023 index price target of 4000 implies flattish performance, the year should be defined by ongoing volatility, but with increased dispersion effects setting up stock, sector, and thematic investment opportunities."
The strategist revised his outlook as investors continue to worry about the likelihood and scale of a downturn next year, which "may be the most widely anticipated recession in decades," he wrote.
— Sarah Min
Piper Sandler thinks an improving advertising landscape should help Pinterest next year despite technology more broadly expecting to see declines in the space.
Analyst Thomas Champion upgraded the social media stock to overweight from neutral and hiked his price target to $30. The new target reflects a 27% upside from where the stock closed Monday.
"We like the new leadership, investor activism, and we see a buyback coming," Champion said in a Tuesday note to clients. "The lows are likely already in."
It's the only platform in Piper Sandler's survey of advertisers to show improvements in return on investment, targeting and measurement. And that could result in more advertising spend going forward, Champion said.
CNBC Pro subscribers can read more about the upgrade here.
— Alex Harring
Tesla shares fell more than 2% on Tuesday, bucking the broader market's move higher, and touched its lowest level since November 2020. The stock hit a low of $161.74.
Tesla has had a tough year, losing more than 53%.
— Fred Imbert
The major averages were off their highs of the day as trading continued Tuesday. The Dow Jones Industrial Average was up 181 points, or 0.54%. The S&P 500 added 1.24%, while the Nasdaq Composite rose 1.86%.
Earlier in the day, the Dow was up as high as 707 points, or 2.08%. The S&P 500 had gained as much as 2.77%. The Nasdaq Composite was up 3.84% at its best levels.
In the prior session, the Dow jumped 500 points as investors bet on a bullish CPI report.
— Sarah Min
KBW cut its recommendation on the U.S. banking sector to "market weight" from "overweight" on expectations that the industry's main driver for revenue growth will slow next year.
Net interest income growth will likely peak in this year's fourth quarter at 30% and decline to just 5% by the fourth quarter of 2023, KBW analysts said Tuesday in a research note.
Banks are generating more interest income this year after the Federal Reserve began its most aggressive rate-hiking cycle in decades. That was one of the reasons KBW upgraded its recommendation on banks in Sept. 2021 to "overweight."
But the group hasn't fared particularly well amid a broader stock selloff on fears that the Fed would trigger an economic downturn that would increase loan losses.
"Bank fundamentals proved strong, but multiples still narrowed and remain cheap – and this is despite higher EPS estimates," the analysts noted.
The slowing revenue growth will make "positive EPS revisions more challenging" and will hurt the group's ability to trade higher, they added.
Within its larger call, the analysts said investors should favor bigger lenders, especially those with Wall Street operations, over smaller banks that rely solely on earning interest income.
Under its most likely scenario, KBW said that Morgan Stanley, Goldman Sachs, Wells Fargo and State Street were good banks to own.
—Hugh Son
Cathie Wood's flagship Ark Innovation ETF (ARKK) jumped nearly 8% Tuesday after CPI report came in lighter than expected.
Leading the rally was tech name 2U, which soared 17%, while Twist Bioscience gained 10%. One of its biggest holdings Roku climbed 9%. Twilio and Shopify each popped 7%.
Wood's disruptive darlings had been under massive pressure this year in the face of rising rates. Investors are now betting that inflation has peaked, which will lead to a slower pace of rate hikes.
— Yun Li
Both the S&P 500 and Russell 2000 traded above their respective 200-day moving averages — on an intraday basis — for the first time since Dec. 5 following November's lighter-than-expected CPI report.
Both the S&P and Russell are trading above their respective 200-day levels of 4,034.01 and 1,856.45.
Both averages have not closed above the 200-day level since Dec. 2.
— Samantha Subin, Gina Francolla
Bond ETFs are rallying after the lighter than expected inflation report on Tuesday morning, including one of the most popular funds for government debt.
The iShares 20+ Year Treasury Bond ETF (TLT) rose 2.2% as yields fell sharply. The fund has nearly $30 billion in net assets.
2022 has been a brutal year for bond funds, including for safe U.S. government debt. Entering Tuesday, the iShares fund had a total return for the year of -26.5%, according to FactSet.
—Jesse Pound
The market reaction to the latest consumer price index numbers are on point, since the data likely means the Federal Reserve rate hikes will be less aggressive than expected early next year, according to Peter Boockvar, chief investment officer of Bleakley Financial Group.
While he still anticipates a 50 basis point hike this month, it's possible the central bank will only hike by 25 basis points and not 50 at its Feb. 1 meeting, he said in a note Tuesday.
"The market reaction speaks for itself, with stocks, bonds, FX and gold reacting as they should. We know the 2022 pain points were 40 yr highs in inflation and the most aggressive monetary response in 40 years," Boockvar wrote.
Now that the Fed is close to ending its rate hikes, the focus next year will shift to the economic consequences of living with a higher cost of capital for longer, as well as the central bank's reduction of its balance sheet, he said.
— Michelle Fox
Stocks jumped after a lighter-than-expected consumer prices report for November raised expectations that inflation is peaking.
The Dow Jones Industrial Average gained 623 points, or 1.8%. The S&P 500 added 2.5%, while the Nasdaq Composite rose 3.3%.
— Sarah Min
Shares of the six biggest U.S. banks by assets climbed after the consumer price index showed that inflation was cooling after hitting multi-decade highs earlier this year.
Bank of America, Wells Fargo, Goldman Sachs, Morgan Stanley and Citigroup rose at least 2% in premarket trading on the news, while JPMorgan Chase shares climbed 1.8%.
The improving picture on inflation means that the Federal Reserve may not be forced to raise interest rates as sharply compared to a scenario in which price increases continued unabated.
While banks benefit from higher rates because they earn more interest income, the sector has traded off this year on hot inflation numbers on concerns that the Fed would trigger a recession, which would lead to a wave of loan defaults.
JPMorgan CEO Jamie Dimon has warned that a financial "hurricane" was nearing because of a combination of higher rates and geopolitical risk.
—Hugh Son
The dollar index, which weighs the U.S. dollar among a basket of foreign currencies, dropped following the cooler-than-expected CPI data. It was last down 1.4%.
The dollar declined as expectations for inflation eased on the report, while Treasury rates tumbled at the same time. Meanwhile, gold and oil prices both rose.
The falling greenback could help multinational stocks with business oversees. Caterpillar and Boeing both rose in premarket trading, adding 2% and 3%, respectively.
— Alex Harring
Markets now think the Federal Reserve may not have to raise interest rates as much, following Tuesday's soft inflation report.
Futures pricing for the Fed's "terminal rate," or point when it can stop hiking, eased to 4.85% in both the May and June 2023 contracts, according to CME Group data. That's down from earlier indications closer to 5%.
In addition, the market now sees an even greater certainty of a 0.5 percentage point interest rate hike this week. That probability rose to just shy of 80% after the consumer price index report showing inflation up just 0.1% in November, according to the CME's FedWatch gauge. The reading compared to about 73% on Monday.
The Fed will announce the rate decision Wednesday at 2 p.m. following the conclusion of its two-day meeting.
—Jeff Cox