US Stocks Rise Despite Inflationary Warnings

Friday saw US stocks ending the day’s trading at a record high as a result of inflationary data falling short of the worst fears. Stocks in three major indices shrugged off recent pessimism once the inflationary rate was reported to be 6.8%. While this is the highest rate in US consumer inflation in 39 years, the S&P 500 added 3.8%,the Nasdaq Composite rose by 3.9% and the Dow Jones Industrial Average was up 3% for the week.

It was a particularly good result for the S&P 500 that recorded its largest percentage weekly gain since the first quarter of 2021. The tech-heavy NASDAQ also made impressive gains as the initial market shock of the Omicron Covid variant started to dissipate.

Key gains included that of the software company Oracle Corp who posted a positive third quarterly report. Other notable tech stock rises included brands ranging from Broadcom to Tesla, while the tech titans Apple and Microsoft made gains of 1.3% and 1.7% respectively.

Not that it was all good news for the markets. Southwest Airlines saw its stock price fall after its shares were downgraded by Goldman Sachs. Oil markets had a mixed day with West Texas Intermediate crude dropping, while Brent crude saw a 1% rise. With gold making a modest gain of 0.1% and Bitcoin rising by 0.3%, it shows that there is room for hope although there was a notable lack of optimism in the European and Asian markets.

Above all, there is a mood that investors are looking for safety ahead of what the Fed decides to do at its meeting on Wednesday. While the shadow of the pandemic will continue to cloud the markets, there was positive news from Pfizer that its vaccine should help to protect against the Omicron variant. This pushed its stock price up by 3% for the week.

Worries ease over inflation concerns

Although the inflationary report from the Department of Labor was concerning, it was nowhere near as bad as many investors had feared. As such, the current inflation rate is hoped to be a spike rather than being more of a sustained level. The rise to 6.8% was forecasted after October’s inflation rate of 6.2%.

Much will depend on how the Federal Reserve adjusts its monetary policy according to the inflation problems caused by the ongoing supply chain crisis as well as the increased consumer demand. The consumer price index jumped by 4.9% on a year-on-year basis.

There’s a growing consensus that the interest rate will rise next year, but the growth is dependent on how quickly the supply chain problems get resolved. As a result, all eyes will be on the Fed next week as it meets to discuss monetary policy including the tapering of bond purchases. With a mixed picture of high inflationary levels, slowly recovering employment rates and a new Covid variant, the fact that the stock market posted record highs is all the more impressive.

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