US stocks gain ground ahead of inflation, earnings updates

NEW YORK (AP) — Stocks rose in afternoon trading on Wall Street Wednesday as investors get ready for a highly anticipated inflation update and several big corporate earnings reports later in the week.

The S&P 500 rose 0.8% as of 2:20 p.m. Eastern. The Dow Jones Industrial Average rose 158 points, or 0.5%, to 33,863 and the Nasdaq rose 1.2%. Every major index is on track for weekly gains in what has been a strong start to the year following a dismal 2022.

Retailers and technology stocks had some of the biggest gains. Home Depot rose 2.1% and Microsoft gained 2.2%.

Airlines climbed despite delays and cancellations following an outage in a government system that resulted in grounded flights nationwide. United Airlines rose 3.9%.

Bond yields were mixed. The yield on the 10-year Treasury, which influences mortgage rates, fell to 3.56% from 3.61% late Tuesday.

Trading has been mostly quiet and uncertain throughout the week. Inflation and the Federal Reserve's fight against it remains the big focus for investors. Wall Street has been hoping that cooling inflation and a slowing economy could convince the central bank to ease off its aggressive interest rate increases, which have weighed on asset prices and risk bringing on a recession.

“One real thing I think underpinning the market is simply the fact that the market doesn’t believe the Fed when they say they're going to keep hiking this year,” said Brad McMillan, chief investment officer for Commonwealth Financial Network.

Investors are projecting that inflation will continue cooling through the year, meeting the Fed's goals without having to continue applying the brakes to the economy with high interest rates.

Many stocks that fell the most last year have been regaining ground this year. Facebook's parent, Meta, is up nearly 11% so far in 2023 after slumping 64% in 2022.

The next big event for markets is Thursday’s update from the government on consumer inflation for December. Economists expect the December report to show U.S. inflation slowed further to 6.5% from 7.1% in November and from a peak of more than 9% in the summer.

The Fed has pledged to keep interest rates higher until it is certain inflation is easing. Its benchmark interest rate stands at 4.25% to 4.5%, compared with near zero early last year.

A worse-than-expected inflation reading could dash hopes on Wall Street that the Fed may stop its hikes soon and perhaps even cut rates by the end of the year. Some investors see the economy successfully walking the tightrope of slowing enough to snuff out high inflation but not so much as to cause a painful recession.

Wall Street is already getting more information on how companies are handling the persistent squeeze on consumers from inflation, with retailers warning about weaker demand hurting revenue and tech companies laying off workers. Earnings season will ramp up Friday when several big companies report results.

Bank of America, Delta Air Lines, JPMorgan Chase and UnitedHealth will report results on Friday.

Markets in Asia were mixed overnight and markets in Europe rose.