Summary

Wall Street rose sharply on Wednesday as the Street shrugged off stronger-than-expected inflation data and snapped up shares of Facebook, Amazon and Apple.

The fourth straight day of gains in the S&P 500 saw a return to the “fear of missing out” mentality that accompanied Wall Street’s rally in recent months ahead of a slump last week into correction territory.

Facebook ended the trading day up 3.7 percent while Amazon.com and Apple both rose more than 1.8 percent. All three fueled the S&P 500, leaving the index up 1.34 percent for the session.

They, along with Netflix and Alphabet – collectively called the FAANG stocks – were major contributors to last year’s market rally, and all but Alphabet have weathered the recent selloff better than the broader market.

Since Thursday, the S&P 500 is up 4.56 percent, its strongest four-session performance since mid-2016. The index remains down about 6 percent from its record high on Jan. 26.

The Labor Department’s core Consumer Price Index, which excludes the volatile food and energy components, increased 0.3 percent in January. However, the year-on-year rise was unchanged at 1.8 percent.

The data raised the specter of rising inflation and rekindled fears that the Federal Reserve could be forced to be more aggressive with interest rate increases.

But those inflation concerns were tempered by data showing retail sales fell 0.3 percent last month, the largest decline in nearly a year and in sharp contrast to consensus estimates for a 0.2 percent increase.

Underpinning confidence among many investors is the belief that the economy remains strong and that tax cuts enacted this year will spur corporate earnings and lead consumers to spend more.

Benchmark 10-year Treasury note yields hit a four-year high, but a key measure of near-term volatility fell, in contrast to its reaction to the strong jobs and wage data earlier in the month.

The CBOE Volatility index fell below 20 for the first time since Feb. 5. Seven of the 11 major S&P 500 sectors rose, with financials rising 2.32 percent and information technology up 1.95 percent.

Fossil rose 87.7 percent after the watchmaker’s strong holiday-quarter sales and a rush among short-sellers to cover their positions.

Chipotle rose 15.4 percent after it hired Brian Niccol from Taco Bell as its next chief executive, which sparked hopes of a relatively quick turnaround.

Approximately 7.8 billion shares changed hands on the major domestic equity exchanges, as compared to the 8.4 billion share daily average over the last 20 sessions.

CPI Rises

The consumer price index rose more than expected in January, with the measure of underlying inflation posting its largest gain in a year. What concerns Wall Street is that the strengthening expectations that price pressures will accelerate will prompt a faster pace of interest rate increases from the Federal Reserve.

The inflation report from the Labor Department on Wednesday morning could put more pressure on the financial markets, which were spooked by a surge in annual wage growth in January.

There are fears that inflation, which is seen as being driven by a tightening labor market and increased government spending, could force the Fed to be a bit more aggressive in raising rates this year than is currently anticipated. That would slow economic growth. The Fed has continually reiterated its forecast of three rate hikes for this year, with the first increase expected in March.

The Labor Department said its Consumer Price Index increased 0.5 percent last month as households paid more for gasoline, rental accommodation and healthcare. The CPI rose 0.2 percent in December. The year-on-year increase in the CPI was unchanged at 2.1 percent as the large price gains from last year dropped out of the calculation.

Excluding the volatile food and energy components, the CPI rose 0.3 percent. That was the largest increase since January 2017 and followed a 0.2 percent rise in December.

The year-on-year rise in the so-called core CPI was unchanged at 1.8 percent in January, also because of less favorable base effects. The core CPI is viewed as a better measure of underlying inflation trends.

The Fed tracks a different index, the personal consumption expenditures price index excluding food and energy, which has consistently undershot the central bank’s 2 percent target since mid-2012.

Base effects will turn more favorable in March, which could set the course for higher annual inflation readings. Average hourly earnings jumped 2.9 percent on an annual basis in January, the largest rise since June 2009, from 2.7 percent in December.

A pickup in wage growth as the labor market hits full employment is expected to contribute to higher inflation this year. Price pressures are also seen being fanned by fiscal stimulus in the form of a $1.5 trillion tax cut package and increased government spending.

Last month, gasoline prices rebounded 5.7 percent after falling 0.8 percent in December. Crude oil prices surged in January on strong global demand and a weaker U.S. dollar. Food prices rose 0.2 percent in January, likely reflecting dollar depreciation.

The core CPI was boosted by rising rents. Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, gained 0.3 percent after rising by the same margin in December.

The cost of healthcare services increased 0.4 percent, with prices for hospital care jumping 1.3 percent and doctor visits rising 0.3 percent. Prices for new motor vehicles slipped 0.1 percent last month and apparel prices surged 1.7 percent.

With the January inflation report, the government incorporated some methodology changes which economists say could inject volatility into the data going forward.

Used car prices changed to a single-month price change from a three-month moving average. Smart phones are now quality-adjusted to account for the rapid rate of technological advancements and improved quality to customers.

Inventories Rise

The Commerce Department reported on Wednesday morning that business inventories increased a bit more than expected in December, rising 0.4 percent after a similar gain in November.

Retail inventories rose 0.2 percent in December as previously reported in an advance report last month. Retail inventories gained 0.2 percent in November.

Motor vehicle inventories fell 0.4 percent as previously reported after decreasing 0.2 percent in November. Retail inventories excluding autos, which go into the calculation of GDP, increased 0.5 percent instead of 0.6 percent as reported last month. They rose 0.4 percent in November.

The government estimated last month that inventory investment subtracted 0.67 percentage point from GDP growth in the fourth quarter. The economy grew at a 2.6 percent annualized growth pace in the final three months of 2017.

Manufacturing inventories increased 0.5 percent in December and stocks at wholesalers rose 0.4 percent.

Business sales increased 0.6 percent in December after jumping 1.4 percent in November. At December’s sales pace, it would take 1.33 months for businesses to clear shelves, unchanged from November.

Retail Sales Drop Sharply

The Commerce Department said on Wednesday that retail sales decreased 0.3 percent last month, the largest decline since February 2017 as households cut back on purchases of motor vehicles and building materials. Data for December was revised to show sales unchanged instead of rising 0.4 percent as previously reported.

Excluding automobiles, gasoline, building materials and food services, retail sales were unchanged last month after a downwardly revised 0.2 percent drop in December. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

They were previously reported to have gained 0.3 percent in December. Last month’s unchanged core retail sales reading pointed to a slowdown in consumer spending at the start of the year. The downward revision to December’s data suggested that the government could lower its fourth-quarter estimate for consumer spending.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was reported to have increased at a 3.8 percent annualized rate in the fourth quarter. The economy grew at a 2.6 percent pace in the final three months of 2017.

Last month, auto sales fell 1.3 percent after slipping 0.1 percent in December. Receipts at service stations rose 1.6 percent, reflecting higher gasoline prices. Sales at building material stores dropped 2.4 percent, the largest decline since April 2016.

There were also declines in sales at furniture and health and personal care stores. Sales at electronics and appliance stores rose 0.5 percent. Receipts at clothing stores increased 1.2 percent. Sales at online retailers were unchanged as were those at restaurants and bars.

Receipts at sporting goods and hobby stores fell 0.8 percent.