U.S. Stocks Rallied on Economic Data

By Joyce Yu

Philadelphia, PA–Underlying U.S. consumer prices marked their largest increase in 11 months in December driven by rising cost of rental accommodation and healthcare, bolstering expectations that inflation will accelerate this year.

The latest data released by the Labor Department showed U.S. Consumer Price Index excluding the volatile food and energy components added 0.3% last month and prices for new motor vehicles, used cars and trucks and motor vehicle insurance also increased. Notably, rents increased 0.4%, and the cost of medical care increased 0.3%. The price of both hospital and doctor visits increased 0.3%. Core CPI increased 1.8% in the 12 months through December, picking up from 1.7% in November.

This is above market expectations. Economists polled by Reuters had forecasted core CPI rising 0.2% month-on-month and holding steady at 1.7% on an annual basis. A tightening labor market, rising commodity prices and a weak dollar are expected to push inflation toward the Fed’s 2% target this year.

The latest inflation reading “has left the market pricing in higher odds of a March rate hike and the odds of more rate hikes in 2018 have increased as well,” Gennadiy Goldberg, a strategist at TD Securities in New York, told the Bloomberg.

The last time investors saw two-year Treasuries yielding 2% goes to back to 9 years ago in Sept. 30, 2008, two weeks after the collapse of Lehman Brothers Holdings Inc., which sparked a global flight to safety assets. This prompted the U.S. Treasury and the Fed to act swiftly with monetary easing policies to bolster confidence in the financial system. The yield closed below 2% at the end of September 2008 and remained below that mark until today. In September 2011, it set a record low of 0.143%.

With the Fed’s benchmark rate locked near zero, global economy gradually recovered, and U.S. economy also seems to gain foothold.

Data from the National Retail Federation also release this morning showed holiday sales jumped 5.5% compared to last year, marking the largest jump seen since the end of the Great Recession. Total sales for November and December were $691.9 billion, exceeding the industry trade group’s forecast of between $678.75 billion and $682 billion, which would have been an increase of between 3.6 and 4 percent.

“We knew that retailers were going to have a good holiday season but the results are even better than anything we could have hoped for,” NRF President and CEO Matthew Shay said.

Driven by strong economic outlook and enthusiasm injected by the tax bill, Wall Street has been continuously marching up to new heights. All three major U.S. indexes rallied between 0.5% and 0.65% as of 1pm on Friday.

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