S&P 500 up 36 at 2,699
Dow Jones up 253 at 24,893
Inflation rate holds steady, defying expectations of a fall
Market applauds appointment of Taco Bell's chief enchilada as its new boss
Equities really found their stride in the afternoon session, extending the morning's gains.
The Dow Jones Industrial Average closed at 24,893, up 253 points while the S&P 500 finished the day at 2,699, up 36 points.
Investment banks were in favor, as investors bet on a more rapid rise in interest rates, which would benefit the banks.
In Canada, the S&P TSX Composite rose 112 points to 15,328.
Mid-session: Stocks consolidate early gains
Stocks remain in positive territory, although pundits remain concerned over what the latest US inflation data means for the Fed's interest rate policy.
The S&P 500 was up 17 points at 2,679 while the Dow Jones average was 50 points higher at 24,691.
The consumer price index jumped 0.5% in January, versus expectations of a 0.3% rise.
“Energy prices were expected to increase, but the rise of 3.0% was firmer than the 1.8% we expected. The core component also provided a surprise with an increase of 0.3% (versus consensus of 0.2%),” noted Japanese broker, Daiwa Securities.
Retail sales were softer than expected, falling 0.3% in January, whereas economists had been expecting a 0.2% rise.
“In general, the report indicated that the holiday shopping season was less vigorous than previously believed and that individuals were not especially active in January; however, with strong results in November, we would still view the holiday shopping season as favorable, and the results in January, while slow, were not weak enough to suggest a pullback by consumers,” Daiwa said.
On the corporate front, Chipotle Mexican Grill Inc (NYSE:CMG) advanced 14.5% to US$287.84 after poaching its new chief executive officer (CEO) from Taco Bell.
New CEO Brian Niccol had run Taco Bell for three years during a time when the chain was been the most successful in the portfolio of Yum Brands Inc (NYSE:YUM), which also owns Pizza Hut and KFC.
Whenever I see stories about Chipotle's financial problems I think about the executive who got a big bonus some years ago for cutting the food safety budget to increase profits. He probably works for OMB now.
— Bruce Bartlett (@BruceBartlett) February 13, 2018
Open: Early gains tempered by fears of earlier-than-expected rate rise
Inflation data somewhat took the wind out of investors' sails in early trading.
Expectations of a hefty rebound were tempered after the inflation numbers heightened the fears that the Federal Reserve would hit the accelerator pedal in terms of hiking interest rates.
“Inflation rates have held steady at 2.1% for annual headline consumer price inflation and 1.8% for the core rate (which excludes food and energy) rather than fall to 1.9% and 1.7%, respectively as the consensus had predicted. Meanwhile, retail sales were far softer than expected, falling 0.3% MoM versus forecasts of a 0.2% rise,” noted James Knightley, the chief international economist at Dutch finance house, ING.
“We think the softness in retail sales is temporary. With tax cuts, record low unemployment, rising wages and high confidence levels suggesting the outlook for spending remains good. However, we think there could be more bad news for inflation. The dollar’s declines will gradually push up import prices, while energy costs will add to the upside. Then there are last year’s distortions relating to cell phone data plans dropping out of the annual comparisons from March. This on its own will add 0.2/0.3 percentage points to annual core inflation with medical care costs and housing costs pushing inflation higher too,”Knightley added.
Jacob Deppe, head of trading at online trading platform, Infinox, said a fall in inflation “would have brought some welcome relief to Wall Street, which had been fretting about the possibility of a potential four interest rate hikes this year, rather than the previously expected three.”
“Instead we saw an important, albeit slight, rise in core Consumer Price Inflation (CPI) to 1.8% in January, while overall CPI held steady at 2.1%
“Wall Street won’t take this inflation data well and it’s likely to be a volatile day of trading. US markets fear higher inflation will embolden an increasingly hawkish US Federal Reserve.
“Given the data it seems unlikely the Fed will shy away from a rate hike in March. It would, in fact, seem all but guaranteed following the appointment of Jerome Powell earlier this month as Fed chair,” Deppe opined.
Despite the shock to the system, the Dow Jones index was up 65 points at 24,705 and the S&P 500 was up 11 at 2,674.
Pre-open
It's a bit early to be thinking of beer, but with results from Molson Coors Brewing Co (NYSE:TAP) out, you have a decent excuse.
Fourth quarter results beat expectations while the market was also heartened by news that the company is increasing its three-year cost savings target to US$600mln by 2019 after making more rapid progress than it expected on cost-cutting in 2017.
The shares were up 2.7% ahead of the official opening of the market.
Fourth quarter net income of US$133.6mln was up from US$101.1mln a year earlier; earnings per share (EPS) rose to 62 cents from 47 cents the year before and were six cents higher than the market had been expecting.
Reason #478 why Canadians are the best. Gold medal winners John Morris and Kaitlyn Lawes brought ice cold Molson Canadian to our set in S. Korea so that we could celebrate with them. pic.twitter.com/607iJhz9dQ
— Dan O'Toole (@tsnotoole) February 14, 2018
Elsewhere in what might loosely be called the leisure sector, hotel operator Hilton Worldwide Holdings Inc (NYSE:HLT) saw fourth-quarter post-tax earnings rise 3% to US$174mln from US$169mln in the same period of 2016.
EPS of 54 cents was three cents higher than the year before and nine cents above the consensus forecast.
On a like-for-like basis revenue per available room – known as RevPAR in the hotel trade – rose 3.8% in the fourth quarter, driven by increases in the average daily rate - hotel room revenue divided by the total number of room nights sold for a given period – and occupancy.
“Given the strength of our brand portfolio, we continue to build momentum in both unit and pipeline growth and now have the largest number of rooms under construction in the industry. We feel great about our set up for 2018 and our ability to continue delivering record-setting results," said Christopher Nassetta, who is the president and the chief executive officer of Hilton.
Shares in Hilton rose 39 cents to US$83.60 in pre-market trading.
After Hilton Worldwide we move on to sector peer, Wyndham Worldwide Corporation (NYSE:WYN), the hospitality company.
Fourth-quarter earnings received a major boost from the recent US corporate tax changes.
Earnings per share of US$4.41 were up from US$1.53 the year before.
Excluding one-off items, earnings per share came in at US$1.49, which was still 13 cents above the consensus forecast.
The quarterly dividend was hiked to 66 cents from 58 cents previously.
"As we continue the process of separating into two publicly traded companies, our business momentum remains strong," said Stephen Holmes, the chairman and chief executive officer of Wyndham.
"Our teams have continued to execute against our strategic and operating plans; we continued to return cash to shareholders through dividends and share repurchases; and we have positioned our businesses for future growth," he added.
With the markets set to open in 45 minutes' time, the S&P 500 was expected to open at around 2,637 and the Dow Jones average at around 24,420.
Yesterday, the S&P 500 rose 7 points to 2,663 and the Dow added 39 points to close at 24,641.