S&P 500 ends at record high as U.S. stocks indexes book weekly gains after hottest CPI in nearly 40 years

For the week, the Dow gained 4%, the S&P 500 climbed 3.8% and the Nasdaq advanced 3.6%. The Dow saw its biggest weekly percentage gain since March, snapping a four-week losing streak, according to Dow Jones Market Data. The S&P 500 and Nasdaq each had their largest weekly percentage gain since February.

What drove the markets?

U.S. stocks ended higher Friday as investors interpreted the latest consumer inflation data as not as bad as the worst-case-scenario for Wall Street.

Data released ahead of the stock market open on Wall Street showed November consumer price inflation rose 6.8% annually, slightly higher than expectations for a rise of 6.7% by a poll of economists by The Wall Street Journal. It marks the fastest annual inflation rate since 1982.

“If you look at the number on the surface, it certainly looks like it came in hot,” said Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers Solutions, in a phone interview Friday. While the inflation print was “a little bit above” forecasts by economists, the “whisper” going through markets yesterday was for a much stronger level, he said.

Also, President Joe Biden’s statement Thursday that Friday’s report on consumer prices wouldn’t reflect a drop in energy prices since the data was collected helped build expectations for a stronger inflation reading, according to Janasiewicz. Some investors may have taken Biden’s remarks as an effort to “soften the blow” of a potentially higher-than-anticipated print from the consumer price index, he said.

The cost of living rose 0.8% on the month, just ahead of expectations for a 0.7% gain. Core inflation, which strips out food and energy costs, jumped 0.5% in November as expected, while core inflation year-over-year in November rose 4.9%.

Read: Hottest U.S. inflation rate in almost 40 years brings sigh of relief in some corners of financial markets

“The initial reaction has seen the US dollar fall and stocks rise with high growth tech stocks leading the charge; moves consistent with easing hawkish Fed expectations,” Fiona Cincotta, senior financial markets analyst at City Index, said in a market brief.

Consumer staples
SP500EW.30,
+1.47%
and information technology
SP500EW.45,
+1.24%
saw the strongest gains Friday among the S&P 500 index’s sectors, each closing around 2% higher, according to FactSet data.

Friday’s consumer inflation report sets the stage for the Federal Reserve’s policy meeting next week, after Fed Chair Jerome Powell recently telegraphed the central bank’s plans to consider tapering its monthly bond purchases at a faster pace.

“For policy, this report increases the probability that the Fed will announce an accelerated tapering at its December meeting, which markets are already expecting,” wrote Alex Pelle, U.S. economist at Mizuho, in a Friday note.

“At the current pace of inflation, the economy would be on track to average 2% inflation over two business cycles (since the Great Financial Crisis) by next year,” Pelle wrote. “As such, we expect the December SEP ‘dot plot’ will show at least 2 hikes at the median in 2022, with a risk that it shows 3 hikes at the median for 2022,” the economist wrote, referring to the chart of the interest-rate projections from members of the Federal Open Market Committee.

The Fed will meet Dec. 14-15.

Meanwhile, consumer sentiment measured by the University of Michigan’s gauge rebounded in December to 70.4 from a final November reading of 67.4. Economists polled by The Wall Street Journal expected an index reading of 68.0.

“We’re still seeing it relatively muted relative to pre-pandemic levels,” said Michael Reynolds, vice president of investment strategy at Glenmede, in a phone interview Friday. That suggests consumers are “just not all that confident as they were perhaps prior to this environment.”

Read: Consumer sentiment rebounds in December, but fears of an inflation ‘spiral’ loom, UMich survey finds

Which companies were in focus?

• Shares of Oracle Corp.
  ORCL,
  +15.61%
  soared 15.6% after the database giant reported forecast-beating fiscal second-quarter results.

• Broadcom
  AVGO,
  +8.27%
  shares rose 8.3% after the chip and software company announced an aggressive plan to return shareholder cash following an earnings beat.

• Chewy
  ALL,
  -8.06%
  stock slid about 8.1% after the online retailer of pet food and other pet-related products reported fiscal third-quarter results late Thursday.

• Peloton Interactive Inc.
  PTON,
  -5.38%
  shares dropped 5.4% after the maker of home-exercise equipment was cut to neutral from outperform at Credit Suisse, which slashed its price target to $50 from $112. Shares slid 11% on Thursday, amid publicity over a plot twist in the “Sex and the City” revival.

How did other assets fare?

• The yield on the 10-year Treasury note
  TMUBMUSD10Y,
  1.485%
  was little changed at 1.487% Friday, but rose about 14.5 basis points for the week, according to Dow Jones Market Data. Treasury yields and prices move in opposite directions.

• The ICE U.S. Dollar Index 
  DXY,
  -0.23%,
  a measure of the currency against a half-dozen other monetary units, fell 0.2% Friday and was down about 0.1% for the week.

• In oil futures, West Texas Intermediate crude 
  CL00,
  +0.40%
  for January delivery 
  CLFFX,
  +0.51%
  rose 1% to settle at $71.67 a barrel, notching the strongest weekly gain since August.

• Gold futures 
  GC00,
  -0.10%
  for February delivery 
  GCG22,
  -0.10%
  rose 0.5% to settle at $1,784.80 an ounce, slightly above the most-active contract’s finish a week ago, FactSet data show.

• The Stoxx Europe 600 Index 
  SXXP,
  -0.30%
  closed 0.3% lower on Friday but finished the week 2.8% higher, while London’s FTSE 100 Index 
  UKX,
  -0.40%
  fell 0.4% but put in a weekly advance of 2.4%.

• In Asia, the Shanghai Composite Index
  SHCOMP,
  -0.18%
  closed 0.2% lower but booked a weekly gain of 1.6%, while the Hang Seng Index 
  HSI,
  -1.07%
  fell about 1.1% in Hong Kong but remained up 1% for the week. China’s CSI 300 
  000300,
  -0.46%
  fell 0.5% but boasted a 3.1% weekly rally. Japan’s Nikkei 225 Index 
  NIK,
  -1.00%
  closed down 1% but notched a 1.5% gain over the five-day period.

—Barbara Kollmeyer contributed to this article.