By Mark DeCambre and Anora M. Gaudiano, MarketWatch
Small-cap Russell 2000 on pace for best daily rise in about a month; VIX readings fall below historic average
U.S. stock gauges rallied to session highs on Wednesday, marking a reversal of opening losses following a key reading of inflation that showed the strongest monthly rise in five months. That inflation measure spooked investors anxious that the Federal Reserve may be compelled to aggressively to tamp down rising prices by hiking rates a rapid clip in 2018.
However, some market participants characterized the initial tumble in stocks as knee-jerk in nature, as investors redshifted to fundamentals, including healthy earnings and an economy that appears to be relatively solid.
Check out:Why this investment pro thinks inflation fears are overblown (http://www.marketwatch.com/story/why-this-investment-pro-thinks-wall-streets-inflation-fears-are-overblown-2018-02-13)
And read:Higher wages spook Wall Street, but fresh fears of inflation look overdone (http://www.marketwatch.com/story/inflation-fears-haunt-wall-street-again-but-investors-might-just-be-having-a-bad-dream-2018-02-10)
What are the main benchmarks doing?
The Dow Jones Industrial Average added 170 points, or 0.7%, to 24,811. The blue-chip average's moves were powered by gains in Goldman Sachs Group Inc. (GS)J.P. Morgan Chase & Co. (JPM), which were scoring a lift from rising rates, which are a boon to a bank's business model.
The S&P 500 index was up by rallied 30 points, or 1.1%, to 2,69, with eight of its 11 main sectors trading higher, led by financials and consumer-discretionary shares, both up at least by 1.4%.
The Nasdaq Composite Index , meanwhile, enjoy the session's best climb among the main equity gauges, up 106 points, or 1.5%, at 7,120.
Also notable, the small-cap focused Russell 2000 index , which has mostly left out of the multisession recovery in the three main indexes, was up 1.3% at 1,513, on track for its best daily advance in a month (http://www.marketwatch.com/story/russell-2000-on-track-for-biggest-one-day-gain-in-nearly-a-month-2018-02-14).
What's driving markets?
Inflation scares that were responsible for the stock-market tumble over the past few weeks made a brief appearance on Wednesday with the release of consumer-price index data. But the main equity gauges recovered from the initial shock to trade higher.
The cost of rent, clothes, gasoline, health care and auto insurance all rose, contributing to the 0.5% jump in the consumer-price index (http://www.marketwatch.com/story/cpi-surges-05-in-january-but-yearly-rate-of-inflation-unchanged-2018-02-14). Core inflation, which strips out volatile food and energy prices, rose by 0.3%.
Analysts said stronger inflation data may force the Federal Reserve to be more aggressive in tightening policy.
Despite the inflation rise, the overall picture hasn't changed much, market participants said. The year-over-year increase in the CPI was unchanged from December at 2.1%. The 12-month rate of core inflation was also flat at 1.8%.
The moves for equities came as a gauge of volatility on Wall Street retreated below its historic average at 20. The CBOE Volatility Index, which reflects bullish and bearish options contracts on the S&P 500 and typically moves inversely to stocks, sank 22% to 19.38. Volatility has been resurgent amid concerns about rising yields and inflation.
Read:Here's a 10-step plan the stock market must complete to get back on track (http://www.marketwatch.com/story/heres-a-10-step-plan-the-stock-market-must-complete-to-get-back-on-track-2018-02-13)
And see:This market selloff was overdue, but now it looks overdone (http://www.marketwatch.com/story/this-market-selloff-was-overdue-but-now-it-looks-overdone-strategists-say-2018-02-10)
What are strategists saying?
"What's different about the moves today than what we've seen over the last two weeks is that we have broken the correlation between the yield of 10-year and the stock market," said Art Hogan, chief market strategist, at regional broker B. Riley FBR, referring to the market's tendency to lose altitude as yields rose, reflecting climbing borrowing costs for corporations.
"Anything with inflation seems like a hot button nowadays, but it is a bit of a red herring here: higher inflation and higher rates are symptoms of economic health. And while inflation is rising it's still below trend," said Karyn Cavanaugh, senior market strategist at Voya Financial.
"At this point it's not inflation but reflation and the Fed will not pull the trigger that fast," said Cavanaugh.
Initial investor reaction to the data suggest that people are worried of aggressive move by the policy makers.
The Fed's hand "may be forced if data on inflation continues to come in higher than expected. The added risk is that the FOMC in 2018 is not the same as the FOMC in 2017, we have a lot more hawks in the committee," said Kristina Hooper, chief global market strategist at Invesco.
What other data are in focus?
Meanwhile, instead of a forecast rise, sales at U.S. retailers (http://www.marketwatch.com/story/us-retail-sales-slump-in-january---and-december-doesnt-look-so-good-now-either-2018-02-14)fell by 0.3% in January--the biggest drop in almost a year--largely because of declines at auto dealers and home centers. And a previously reported increase in sales in December was wiped out.
In other data, business inventories in the U.S. rose 0.4% in December after a similar gain in the prior month.
Which stocks look like key movers?
Fossil Group Inc.'s stock (FOSL) surged 75% after the watch seller late Tuesday posted better-than-expected earnings (http://www.marketwatch.com/story/fossil-group-explodes-more-than-50-higher-after-earnings-2018-02-13) and KeyBanc analysts hiked their price target (http://www.marketwatch.com/story/fossil-shares-soar-70-as-keybanc-raises-price-target-to-25-vs-15-2018-02-14).
Chipotle Mexican Grill Inc.'s shares (CMG)rallied 14% after the burrito chain late Tuesday named a new CEO (http://www.marketwatch.com/story/chipotle-chooses-taco-bell-ceo-as-new-leader-stock-soars-2018-02-13): Brian Niccol, previously the CEO for Yum Brands Inc.'s (YUM) Taco Bell business.
In earnings news, Hilton Worldwide Holdings Inc.(HLT) beat profit forecasts, sending shares 4% higher.
Molson Coors Brewing Co.(TAP) shares rose 4.4% after better-than-expected earnings results.
Netflix Inc.(NFLX) shares jumped about 3.4% after the New York Times reported that the company has lured one of Hollywood's top TV hitmakers, producer Ryan Murphy, in a deal worth as much as $300 million.
What are other assets doing?
European stocks (http://www.marketwatch.com/story/european-stocks-perk-up-after-german-growth-data-2018-02-14)finished the session firmly higher, while Asian markets finished mixed (http://www.marketwatch.com/story/asian-markets-largely-quiet-ahead-of-lunar-new-year-holiday-2018-02-13).
Gold futures settled firmly higher, up 0.8% at $1,326.40 an ounce, oil futures (http://www.marketwatch.com/story/oil-prices-weighed-by-rise-in-us-oil-output-inventories-2018-02-14)rebounded from an early decline (http://www.marketwatch.com/story/oil-prices-weighed-by-rise-in-us-oil-output-inventories-2018-02-14), and the ICE U.S. Dollar Index (http://www.marketwatch.com/story/dollars-descent-carries-on-as-us-inflation-data-looms-2018-02-14)erased inflation-fueled gains to trade 0.2% lower at 89.536.
The yield on the 10-year Treasury note rose 5 basis points to 2.90%, marking a fresh four-year high.
--Victor Reklaitis contributed to this article
(END) Dow Jones Newswires
February 14, 2018 14:04 ET (19:04 GMT)
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