The stock market moved higher on Friday—extending this week’s rally—despite consumer prices surging 6.8% last month, the highest inflation reading in nearly 40 years, according to data released by the Labor Department.
The Dow Jones Industrial Average rose 0.6%, over 200 points, while the S&P 500 gained nearly 1% and the Nasdaq Composite 0.7%.
While markets took a hit after the first case of omicron was reported in the United States last week, stocks have recently bounced back as investors grow less fearful about the Covid omicron variant—with the S&P 500 hitting a new record high on Friday.
Even a bad inflation reading on Friday morning wasn’t enough to spook investors: Consumer prices rose 6.8% in the 12 months ending in November, according to Labor Department data, which shows inflation at a nearly 40-year high.
Some investors who expected an even higher inflation reading were relieved by the news and sent stocks up, while others remain optimistic about the ongoing economic recovery boosted by a strong labor market recovery.
Shares of tech giant Oracle jumped over 15%, a day after beating quarterly earnings estimates, while shares of at-home fitness company Peloton added to the previous day’s losses, falling over 5% on Friday.
Vaccine maker Moderna’s stock, meanwhile, fell nearly 6% as investors await more data and updates on the efficacy of the company’s Covid treatments against the omicron variant.
Big Number: $15.1 Billion
That’s how much Oracle cofounder Larry Ellison’s net worth jumped on Friday, to $135.7 billion, according to Forbes’ estimates. He is now the fifth richest person in the world.
After the emergence of the omicron variant led to a sell-off last week, stocks are now on pace for a solid weekly rebound. All three major indexes have risen by nearly 4% this week as investor concerns about the new variant abate amid news that vaccines are effective against it.
“The inflation print from this morning will reinforce the Fed’s resolve to accelerate tapering,” predicts Anu Gaggar, global investment strategist for Commonwealth Financial Network. “With the strength in the economic recovery, it is time to take the crutches away,” he says, adding, “supply and labor shortages will keep aggregate prices elevated for longer, keeping inflation higher than the Fed target for a while.”
What To Watch For:
While December has historically been a great month for the stock market, the new omicron variant is causing “major volatility” and complicating the inflation outlook, says Ryan Detrick, chief market strategist for LPL Financial. Despite the myriad of challenges facing markets in 2022, he remains “optimistic” that stocks will finish the year on a solid note.
I am a senior reporter at Forbes covering markets and business news. Previously, I worked on the wealth team at Forbes covering billionaire
Amazon shares dropped 2.1% after the e-commerce giant badly missed earnings and revenue expectations for the third quarter. Apple stock fell 1.8% after the tech giant’s quarterly revenue fell short of expectations amid larger-than-expected supply constraints on iPhones, iPads and Macs. It was the first time Apple’s revenues have missed Wall Street estimates since May 2017.
However, Microsoft rose 2.2% to surpass Apple as largest listed company in the world by market cap. Nike and Intel also had solid days to boost the Dow.
Despite the disappointing results from Big Tech, the stock market has been raking in records amid solid earnings even with global supply chain concerns. About half of the S&P 500 have reported quarterly results and more than 80% of them beat earnings estimates from Wall Street analysts. S&P 500 companies are expected to grow profit by 38.6% year over year.
“So far, I think it is fair to say that companies have managed to navigate these headwinds effectively, of course having the benefit of strong demand,” said Angelo Kourkafas, an investment strategist at Edward Jones. “But they are not immune to it. These input cost pressures will show up as reduced revenue or potentially lower profit margins.”
“But I think so far, with about half to the S&P 500 companies having reported, the initial assessment is that profitability has remained fairly resilient because of strong demand and pricing power,” he added.
Shares of Exxon Mobil and Chevron rose on Friday after the energy giants topped earnings expectations. Starbucks, however, was under pressure after revenue from China missed expectations.
All three major averages posted their fourth positive week in a row and finished solidly higher for the month. The Nasdaq gained 7.2% for October, while the S&P 500 gained 6.9%. The Dow rose 5.8% for its best month since March. The month marked a rebound from September, where the major indexes declined.
Market sentiment was also helped by developments in Washington. On Thursday, President Joe Biden announced a framework for a $1.75 trillion social spending deal. The agreement, which is expected to make it easier to pass the separate infrastructure spending bill currently stalled on Capitol Hill, came in lighter on spending and taxes than earlier proposals.
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Yung-Yu Ma, chief investment strategist at BMO Wealth Management, said the deal appeared to be in a “sweet spot” and should create more optimism among investors.
“The tax portion of it is looking like it’s going to come in probably below all of the original expectations. So the burden for specifically corporate taxes is going to be lower than the concerns and the expectations in the marketplace were,” Ma said.
Treasury Secretary Janet Yellen spoke to CNBC on Friday morning, saying she was hopeful that the administration’s infrastructure package would be approved soon while saying she does not believe it will add to the inflation problems the U.S. has been experiencing.
“It will boost the economy’s potential to grow, the economy’s supply potential, which tends to push inflation down, not up,” Yellen said during a live “Worldwide Exchange” interview.