Stocks rebound as investors shake off another hot inflation report

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Stocks dipped on Wednesday, swinging between gains and losses as investors attempted to digest the latest U.S. inflation data.

The S&P 500 traded flat while Nasdaq Composite dipped 1%, and the Dow Jones Industrial Average advanced 60 points or 0.2%.

“I think there’s a hope, and I emphasize hope, that we’ve seen the peak in the rate of change in CPI,” said Peter Boockvar of Bleakley Advisory Group.

Chevron was the best-performing Dow stock, climbing nearly 3%. Merck shares also popped more than 2%. Energy led the S&P 500 higher, with the sector jumping nearly 3%, while utilities and materials each gained more than 1%.

Some tech shares struggled, tempering gains for the Nasdaq. Meta Platforms, Microsoft and Netflix each fell around 2%.

“There’s a fair amount of bad news priced in so it doesn’t surprise me that we don’t have a large sell-off,” said Kathy Bostjancic of Oxford Economics.

April’s consumer price index showed an 8.3% jump, higher than the 8.1% increase expected by economists polled by Dow Jones. The price surge remained near the 40-year high pace of 8.5% seen in March. Core CPI, which does not include food and energy prices, gained 6.2% compared to expectations of 6%. On a monthly basis, headline CPI rose by 0.3% and core rose 0.6%.

“I think it’s a classic case where you ignore the headline and look at the details,” said Jeffrey Roach of LPL Financial. “I think the market was having a lot of trouble trying to discern the report,” though the data confirms that inflation is likely moving past a peak.

He points to rising airline prices and hotel prices as a pivot from goods to experiences and a sign of relief in durable goods.

Not all analysts are convinced the data is a sign of peaking inflation.

“With the annual rate ticking down from 8.5% to 8.3, it can be tempting to say we’ve seen the peak, but we’ve also been head-faked before as was the case last August,” said Bankrate chief financial analyst Greg McBride

Meanwhile, rising prices have been front-of-mind, particularly as the Federal Reserve is hiking interest rates and trimming its balance sheet to address inflation.

Following the data release, the 10-year Treasury yield briefly jumped back above the 3% mark but traded down at 2.948%.

Some analysts see the data as a sign that the Fed is behind the curve in curbing inflation, which could put pressure on the central bank to act more aggressively in tightening monetary policy.

“Risk assets are under pressure with equity futures red on the assumption this will compel the Fed to extend the 50 bp cadence beyond the June/July meetings already signaled,” said Ian Lyngen, BMO’s head of U.S. rates.

The initial negative market reaction to the inflation print, which saw all the major indexes dip, was “totally understandable,” but as prices continue to rise, the U.S. is on the brink of a “cost of living crisis,” Allianz chief economic advisor Mohamed El-Erian told CNBC’s “Squawk on the Street.”

“It’s just a matter of time until we talk about a cost of living crisis and this is what it is,” he said. “Everybody is focusing on the headline number, that’s understandable but look at the core, 6.2%, and look at the composition of inflation that suggests there are many drivers now. This is no longer an issue about just the Ukraine war, this is a broad-based inflation process that the Fed has fallen behind in a major way.”

The S&P 500 stands about 16% off its high in a pullback this year largely driven by fears of out-of-control inflation causing the Federal Reserve to aggressively tighten monetary policy.

On the earnings front, shares of Coinbase slumped more than 23% after the crypto exchange posted its latest quarterly results, while Roblox added 10.5%. Investors are looking ahead to reports from Walt Disney, Rivian and Beyond Meat after the bell.

Wednesday’s moves come after the Dow fell for a fourth consecutive day Tuesday in a volatile trading session, alternating between gains and losses. The S&P 500 ticked up 0.25% and the Nasdaq Composite gained about 1%.

— CNBC’s Yun Li contributed reporting