Stocks tick higher as rate fears ease up

Sales at U.S. retailers jumped by more than expected in January

NEW YORK — Stocks ticked higher on Wall Street Wednesday as hopes for a resilient economy jousted with worries about inflation following a much stronger reading than expected on U.S. retail sales.

The S&P 500 rose 0.3 percent after swinging from early losses to gains through the day. The Dow Jones Industrial Average edged up by 38 points, or 0.1 percent, while the Nasdaq composite rose a more forceful 0.9 percent.

Sales at U.S. retailers jumped by more last month than expected, even as shoppers contended with higher interest rates on credit cards and other loans. The surprising strength offers hope that the most important part of the U.S. economy, consumer spending, can stay afloat despite worries about a possible recession looming. It’s the latest piece of data to show the economy remains more resilient than feared.

At the same time, though, the strong buying potentially adds more fuel to inflation, which a report earlier this week showed is cooling by less than expected. Upward pressure on inflation could force the Federal Reserve to stay more aggressive in keeping interest rates high.

High rates can drive down inflation, but they also drag on investment prices and raise the risk of a painful recession.

“Will it lead to that traditional recession or a shallow recession, or will we power through it and have more strong growth with still-high rates?” asked Tom Hainlin, national investment strategist at U.S. Bank Wealth Management. “That’s still the unknown, which is how resilient can the consumer be in this higher for longer” rate environment.

“It seems like both consumers and corporate America came into this in pretty good shape and so far are holding out OK,” he said.

The worries about higher rates and a firmer Fed have been most evident in the bond market, where yields on Treasurys have jumped since a report two Fridays ago showed the U.S. job market remains stronger than expected.

Following Tuesday’s data on inflation that was slightly hotter than expected, economists at Deutsche Bank raised their forecast for how high the Fed will take its key overnight interest rate. They now see it ultimately rising to 5.6 percent, up from their prior forecast of 5.1 percent.

The Fed has already pulled its overnight rate all the way to a range of 4.50 percent to 4.75 percent, up from virtually zero a year ago.