Data show consumers are paying more, but stock investors still want to scoop up beaten-up names. Most stocks in the S&P 500 index rose as buyers swarmed the market.
Stocks rose substantially, as investors digest that inflation has arrived. They’re comfortable buying the recent dip.
The Dow Jones Industrial Average rose 433.79 points, or 1.29%, to close at 34,021.45. The S&P 500 gained 49.46 points, or 1.22%, to end at 4,112.50, and the Nasdaq Composite added 93.31 points, or 0.72%, to close at 13,124.99. The biggest gainer on the S&P 500 was steel maker Nucor (ticker: NUE), which saw shares rise 5.0% after the company announced a stock-buyback program.
Inflation is here, for the moment at least. On Wednesday, consumer-price-index data showed it rose more than expected, confirming that companies are indeed passing along higher costs to consumers. The producer price index began rising more than expected a few weeks ago. Producer price inflation beat estimates again Thursday, with a 6.2% year-over-year rise, against expectations of 5.9%.
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After Wednesday’s selloff, all three major U.S. indexes had already fallen at least 4% from recent all-time highs hit this earlier month. Elevated inflation makes the Federal Reserve more likely to raise interest rates sooner than expected, a move that erodes the value of future profits, and lowers stock valuations. Now, the average forward-earnings multiple for an S&P 500 stock is 21 times, according to FactSet data, lower than 22 times just a few days ago.
This opens the door for stock investors to scoop up bargains. Not only did the major indexes rise sharply Thursday, but most stocks participated in the rally, after a sell-off that reached far and wide. Thursday’s surge wasn’t concentrated in just a few sectors, but rather across the board. About 88% of S&P 500 component stocks rose on the day, along with 29 out of 30 Dow components. When stocks began to rise this morning, Evercore strategists said investors did appear to be buying the dip.
Still, investors should brace for the Fed’s next move.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
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May 14, 2021 at 04:32AM
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What Happened to the Stock Market Today? Inflation Didn’t Stop People From Buying Dips. - Barron's
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