Wall St gains as retail sales, inflation data ease rate hike worries

Jan 18 (Reuters) – Wall Street’s main indexes rose on Wednesday after weak retail sales and further evidence of slowing inflation supported hopes of smaller rate hikes by the Federal Reserve, while Tesla shares gained for the second straight day.

A reading from the Commerce Department showed retail sales fell 1.1% in December against expectations of a 0.8% drop, while a separate report showed producer prices declined more than expected in December.

“The market is getting what it wants, which is the slowing in inflation, which means that the Fed can (hike) at a slower rate and maybe have a lower endpoint,” said Tom Martin, senior portfolio manager at GLOBALT in Atlanta.

Traders’ bets of a 25-basis point rate hike rose after the data, while U.S. 10-year Treasury yields fell to a four-month low.

Focus also remains on the earnings season as it gathers pace to gauge the strength of corporate America against the backdrop of higher interest rates.

Analysts now expect year-over-year earnings from S&P 500 companies to decline 2.6% for the quarter, according to Refinitiv data, compared with a 1.6% decline in the beginning of 2023.

Tesla Inc (TSLA.O) rose 1.5% for the second straight session as analysts noted the electric-vehicle maker’s recent price cuts to top models gave it a competitive edge.

Also boosting the S&P 500 (.SPX) and Nasdaq (.IXIC), Microsoft Corp (MSFT.O) rose 0.2% after the company said it would cut 10,000 jobs by the end of the third quarter of fiscal 2023.

Among major S&P 500 sectors, consumer discretionary stocks (.SPLRCD) were up 1%, leading gains.

U.S. stock markets have started 2023 on a strong footing on hopes that a moderation in inflationary pressures could give the Fed cover to dial down the size of its interest rate hikes.

St. Louis Fed President James Bullard said on Wednesday interest rates need to go over 5% at least, echoing views by several other policymakers in recent weeks.

At 9:49 a.m. ET, the Dow Jones Industrial Average (.DJI) was up 63.78 points, or 0.19%, at 33,974.63, the S&P 500 (.SPX) was up 14.36 points, or 0.36%, at 4,005.33, and the Nasdaq Composite (.IXIC) was up 73.86 points, or 0.67%, at 11,168.98.

Among other stocks, United Airlines Holdings Inc (UAL.O) rose nearly 1% as it forecast at least a four-fold jump in full-year profit, lifting the S&P 1500 airlines index (.SPCOMAIR).

Moderna Inc (MRNA.O) rose 7.8% after reporting data which demonstrated the effectiveness of its respiratory syncytial virus (RSV) vaccine.

IBM Corp (IBM.N) was a drag on the Dow, falling 1.3% after Morgan Stanley downgraded the company’s shares to “equal weight” from “overweight”, citing slowing revenue growth.

PNC Financial Services Group Inc (PNC.N) fell 5.5% after the company missed estimates for fourth-quarter profit.

Advancing issues outnumbered decliners for a 3.96-to-1 ratio on the NYSE and a 2.60-to-1 ratio on the Nasdaq.

The S&P index recorded eight new 52-week highs and no new low, while the Nasdaq recorded 47 new highs and four new lows.

Reporting by Shubham Batra, Shreyashi Sanyal and Amruta Khandekar in Bengaluru; Additional reporting by Ankika Biswas; Editing by Shounak Dasgupta

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