Inflation was the story of the day on Wall Street, and the latest numbers sparked another choppy session for stocks.
Kiplinger staff economist David Payne previously forecast that inflation would likely end 2021 around a 40-year high, which turned out to be the case.
The Labor Department this morning said its consumer price index – which measures what consumers are paying for goods and services – surged 7% year-over-year in December, marking the fastest annual rise since 1982. Core CPI, which excludes the volatile food and energy sectors, notched an annual increase of 5.5%, which was its highest pace in 30 years.
Barry Gilbert, asset allocation strategist at LPL Financial, called the headline inflation number “eye-popping … but largely expected.”
Gilbert added that the numbers are unlikely to shake the Federal Reserve’s plan to start hiking interest rates, and that those could start as early as March.
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Investors shrugged off the news, with markets jumping out of the gate. However, the buying trend lost steam as the day wore on, with the major benchmarks finishing well off their session peaks.
The Nasdaq Composite, which was up 1% at its intraday high, settled with a more modest 0.2% gain at 15,188 – its third straight win. The S&P 500 Index and Dow Jones Industrial Average also pared their earlier gains, ending up 0.3% at 4,726 and 0.1% at 36,290, respectively.
Other news in the stock market today:
- The small-cap Russell 2000 fell 0.8% to end at 2,176.
- U.S. crude oil futures settled sharply higher, up 1.8% to $82.64 per ounce, after the Energy Information Administration reported a 4.6 million-barrel decline in crude stocks for the week ended Jan. 7. Total supplies of 413.3 million barrels reached a low point last seen in 2018.
- The CPI report was good news for gold futures, which set another year-to-date high, settling up 0.5% to $1,827.30 per ounce.
- Bitcoin jumped 2.9% to $43,845.91. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
- Tesla (TSLA, +3.9%) enjoyed a robust day of gains in the wake of a few recent upgrades. Goldman Sachs’ Mark Delaney called Tesla a “Best Idea” in electric vehicles and hiked his price target to $1,200 from $1,125 previously, citing bullishness on EV adoption broadly. Morgan Stanley’s Adam Jonas, who upped his price target to $1,300 from $1,200, compares the EV race to a marathon: “Tesla is in the lead at mile number 21. Everybody else is at mile 2 or still tying their shoes,” he says.
- PayPal (PYPL, -2.3%) retreated after a Jefferies downgrade. Analyst Trevor Williams, in exploring the payments space, reiterated positive opinions on Visa (V, +0.6%), Mastercard (MA, +0.3%) and Block (SQ, -2.0%). However, he says that his firm is being more selective about the industry in 2022, and PayPal (Hold) doesn’t quite make the cut. “With our expectation for growth to remain sub-20% year-over-year through at least [the second quarter of 2022], we do not see a positive catalyst in the near term,” Williams says. “And with valuation still roughly five times above pre-COVID averages, we see little room for expansion.”
Where to Find Yield
Today’s muted market reaction to sky-high inflation numbers was likely a sign of relief for many investors who have seen their portfolios take a hit during the recent selling.
And there are certainly plenty of uncertainties still lingering for investors, including when price pressures will start to ease and when the Fed will start raising rates.
This could well create additional volatility in markets, as plenty of experts have warned, and finding space in your portfolio for defensive stocks or income-producing assets could help cushion any potential blows.
“With inflation seemingly likely to hang around,” says Simeon Hyman, head of investment strategy at ProShares, “a growing income stream can be especially useful.” This is especially true as market valuations remain elevated, he adds. “Against this backdrop, high-quality dividend growth stocks with strong fundamentals like consistent growth of earnings and dividends may take on added importance this year.”
Hyman points to the Dividend Aristocrats – companies who have raised their dividend payments annually for the last 25 years – as one area where investors may find yield. Real estate investment trusts (REITs) and healthcare stocks are also dependable income payers.
But you can also consider diversifying your portfolio with closed-end funds (CEFs). These high-yielding funds can offer investors certain advantages compared to their mutual-fund cousins – including the ability to buy the underlying stocks and bonds at a discount. Read on as we take a look at the 10 best CEFs for 2022.