US stocks gained on Friday after the data on inflation indicated that the Fed would not have to push ahead with plans to tighten monetary policy. The S&P 500 rose 0.65%, while the Nasdaq 100 increased 0.7%, thanks to the headline rate hitting 6.8%, the highest since 1982. Meanwhile, the yield on 10-year US Treasuries fell to 1.47% as traders cut bets on the pace of Fed tightening.
Investors have been eagerly awaiting the inflation report and scheduled Fed meeting next week to find out the pace of tapering and rate hikes, after Fed Chairman Jerome Powell said the central bank should consider removing stimulus at a faster pace.
"People thought it would be much worse," said Dennis DeBusschere, founder of 22V Research. "It is still a high number to be sure, but should reduce some worries on the Fed having to crush growth."
The report also said the markets are being affected by the uncertainty surrounding the omicron virus, as the US appears to be heading for a crisis due to hospitalizations rising. London-based firms have begun recommending thousands of employees to work from home because of it. Nonetheless, consumer sentiment is improving, with one indicator showing a rise from a decade low in November.
"We believe the stock market will continue to rise as consumer spending remains strong and corporate profits - for now - are continuing to grow," said Chris Zaccarelli, CIO of Independent Advisor Alliance. "But increased volatility is likely over the next 6-12 months as inflation, interest rates and Fed policy are all going to be shifting much more rapidly than they have in the past. The most important thing investors can do is to remain diversified and not lean too heavily into any one area, " he added.
