Dow hits all-time high after benign inflation report

A benign reading on inflation helped spur stocks on Wall Street broadly higher Wednesday, sending the Dow Jones Industrial Average to an all-time high.

The S&P 500 rose 0.6%, led by gains in energy and financial stocks. Technology companies fell, giving back some of their gains from a big rally a day earlier. The tech-heavy Nasdaq posted a small loss after an early gain faded.

A key measure of inflation at the consumer level came in lower than expected last month, helping to calm investors who had worried that prices could rise too quickly as the economy recovers. Treasury yields fell broadly following the report, including the benchmark 10-year Treasury note, which influences interest rates on mortgages and other consumer loans.

Bond yields rose sharply over the past month due to expectations for faster growth and the inflation that could follow. The fall in bond prices attracted investors reluctant to pay high prices for stocks, especially tech stocks that looked most expensive.

“It’s clear that investors expect there to be a bump in inflation in the short term, but the long-term view is pretty benign,” said Katie Nixon, chief investment officer at Northern Trust Wealth Management.

The Dow gained 1.5%, thanks partly to a 6.4% jump in Boeing. The Dow’s previous all-time high was about two weeks ago.

The Labor Department said Wednesday that U.S. consumer prices increased 0.4% in February, the biggest increase in six months. However, a closely watched measure called core inflation, which excludes food and energy prices, posted a much smaller 0.1% gain. The rise for core inflation was also below economists’ expectations.

The latest report on inflation, along with the Federal Reserve promising to keep interest rates low, has helped ease concerns over the recent rise in bond yields, Nixon said.

“Investors are coming around to the view that it’s not a bad backdrop for risk assets,” she said.

Investors are also betting the latest $1.9 trillion in government stimulus will help lift the U.S. economy out of its coronavirus-induced malaise.