U.S. stocks edge up as inflation data looms

U.S. stocks were slightly higher on Wednesday as the market builds on a positive start to 2023 and as traders looked ahead to Thursday’s inflation report.

How are stock indexes trading
  • The S&P 500 
     was up 13 points, or 0.3%, to 3,932

  • The Dow Jones Industrial Average 
    rose 61 points, or 0.6%, to 10,800

  • The Nasdaq Composite 
    gained 23 points, or 0.1%, to 33,732

On Tuesday, the Dow Jones Industrial Average rose 186 points, or 0.56%, to 33704; the S&P 500 increased 27 points, or 0.7%, to 3919; and the Nasdaq Composite gained 107 points, or 1.01%, to 10743.

What’s driving markets

U.S. stocks saw modest gains Wednesday with traders eyeing looming inflation data due Thursday.

The S&P 500 index bounced off its 100-day moving average and finished Tuesday’s session above its 50-DM, taking its gain for the year so far to 2.1%, a four-week high.

The uptick comes after Wall Street’s benchmark fell nearly 20% during 2022 in response to the Federal Reserve raising its policy interest rate by 425 basis points, from zero in March, as it strived to tackle four-decade-high inflation.

“With the first 6 trading days of 2023 behind us, the S&P 500 is off to a solid start with >2% gains,” wrote Tom Lee, head of research at Fundstrat, in a note to clients.

“We have a lot of clients telling us they are being ‘paid to wait’ because they are earning 4% on their cash. This is true, but we think the mood of these investors will change when the S&P 500 gains 4% (this month?). Because, this will suddenly highlight the opportunity cost of owning cash (which takes 1 year to earn 4%) whereas S&P 500 could be on track to gain +25% or more,” Lee added.

With little notable U.S. economic scheduled for Wednesday, traders’ attention inevitably skips to Thursday’s important December consumer prices report.

Investors will be looking for more evidence that inflation, which touched 9.1% in June and dipped to 7.1% in November, is continuing to slip and may allow the Fed to ease monetary policy soon.

“It’s been pretty clear for several months now that goods inflation is slowing,” said Scott Ladner, chief investment officer at Horizon Investments. “The services side of inflation is really where everyone’s gonna be focused on,” according to Ladner.

“Anything from any data we can get out of the services side of the month over month inflation, is where we’re going to be making an assessment,” Ladner told MarketWatch in a phone interview.

“Investors seem to be pricing in an expectation that inflation is set to loosen further,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

“Reports of global supply chain bottlenecks easing, and the reopening of China mean that ultimately, markets are baking in some renewed optimism. There is a ceiling to this good mood, though. Stock markets remain highly sensitive and have been prone to some misdirection in recent trading days,” she added.

Still, Fed officials remain resolute in stressing they are prepared to err on the hawkish side to ensure high inflation is slain.

And to that point, there will be a slew of Fed members making comments on Thursday to accompany the CPI numbers. These include Philly Fed President Patrick Harker, St Louis Fed President James Bullard and Richmond Fed President Tom Barkin.

Companies in focus
  • Shares of Ichor Holdings Inc.
    tumbled 11% Wednesday, after the semiconductor equipment maker warned of a revenue miss for the fourth quarter, as well as for the first quarter.

  • Shares of ProKidney Corp.
    lost 9% Wednesday, despite that the company said preliminary data from a Phase 2 study found that the company’s investigational renal autologous cell therapy treatment can delay the need for dialysis in some patients with chronic kidney disease.

  • Shares of Eton Pharmaceuticals Inc.
     rose about 12% Wednesday after the company said its experimental treatment for alcohol poisoning is being reviewed by the Food and Drug Administration.

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