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By Stephen Culp
NEW YORK, April 12 (Reuters) – The S&P 500 .SPX gained ground on Wednesday after minutes from the Federal Reserve’s March policy meeting revealed several voting members of the Federal Open Markets Committee (FOMC) considered a pause in interest rate hikes amid the regional bank liquidity crisis.
The minutes followed a cooler-than-expected inflation report which belied stickier underlying data and cemented the likelihood of another policy rate hike when the Fed convenes next month.
“The Fed is a consensus driven institution,” said Zach Hill, head of portfolio management at Horizon Investments in Charlotte, North Carolina. “The market has been very eager to trade that peak policy Fed behavior – the pause and pivot – and the Fed is not communicating that at all.”
The major indexes seesawed as market participants parsed the Labor Department’s Consumer Price Index (CPI).
That report, on prices urban consumers pay for a basket of goods and services, came in below analysts’ expectations, suggesting that the Fed’s efforts to tame inflation is taking effect.
However, core CPI – which strips out volatile food and energy items – hit the consensus bull’s eye, and remains well above the Fed’s average annual 2% target rate.
“We saw progress on headline inflation and people started digging in and the initial optimism reversed,” Hill added. “The core numbers have seen improvement but they’re well above where they need to be.”
Earlier in the session Richmond Fed President Tom Barkin underscored that reality, remarking that inflation has a long way to go before approaching that target.
At last glance, financial markets have priced in a 71% likelihood of another 25 basis point interest rate hike at the conclusion of the FOMC’s policy meeting next month, and a 29% probability the Fed funds target rate will remain at 4.75% to 5.00%.
The next market-moving catalyst is likely to be first-quarter earnings season, which kicks off on Friday with results from three big banks – Citigroup Inc C.N, JPMorgan Chase & Co JPM.N and Wells Fargo & Co WFC.N.
Analysts now expect aggregate first-quarter S&P 500 earnings down 5.2% year-on-year, a stark reversal from the 1.4% annual growth seen at the beginning of the quarter.
At 2:06 p.m. ET, the Dow Jones Industrial Average .DJI rose 172.28 points, or 0.51%, to 33,857.07, the S&P 500 .SPX gained 14.01 points, or 0.34%, at 4,122.95 and the Nasdaq Composite .IXIC added 5.68 points, or 0.05%, at 12,037.56.
Among the 11 sectors of the S&P 500, industrials .SPLRCI were enjoying the largest percentage gain, while consumer staples .SPLRCS and consumer discretionary .SPLRCD were both in the red.
American Airlines Group Inc AAL.O slid 9.1% after it forecast a lower-than-expected first-quarter profit.
Advancing issues outnumbered decliners on the NYSE by a 1.80-to-1 ratio; on Nasdaq, a 1.04-to-1 ratio favored decliners.
The S&P 500 posted 12 new 52-week highs and two new lows; the Nasdaq Composite recorded 61 new highs and 143 new lows.
US inflation, Fed rates and Marketshttps://tmsnrt.rs/3KTumBW
(Reporting by Stephen Culp; Additional reporting by Sruthi Shankar, Ankika Biswas in Bengaluru and Richard Chang)
((stephen.culp@thomsonreuters.com; 646-223-6076;))
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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