S&P hits new record as market rallies despite inflation jump

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Stocks rose Thursday morning in the face of the fastest annual inflation in more than a decade, sending the S&P 500 index to a new record high.

© BRYAN R. SMITH/AFP/Getty Images S&P hits new record as market rallies despite inflation jump

The S&P opened 0.7 percent higher Thursday, setting a new historic peak of 4,249 despite federal data showing a 5 percent annual increase in consumer prices in May. The Dow Jones Industrial Average rose roughly 0.7 percent as well while the Nasdaq gained 0.8 percent.

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The stock market’s strong open came an hour after the Bureau of Labor Statistics highly anticipated inflation data for May, which showed prices rising slightly higher than economists had expected. Even so, much of the May jump in prices were driven by supply constraints-such as a national used car shortage and a rush of diners returning to restaurants-that many economists believe will be temporary.

While the stock market often responds negatively to rising inflation, Thursday’s solid open indicated at least some level of comfort that the Federal Reserve will not be forced into hiking interest rates sooner than they had expected.

“Within the data, strong contribution continues to come from sectors that are rebounding quickly with pandemic restrictions easing. Additionally, it is still evident that supply chain issues are taking a toll on some sectors,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.

“Figures like today’s CPI will certainly be raising eyebrows at the Fed, but the bottom line is they will likely need additional evidence to determine whether upward inflation pressures will be more persistent.”

Republican lawmakers and inflation hawks have blasted President Biden and the Fed for not pulling back on the major fiscal and monetary support they’ve pumped into the U.S. economy amid the ongoing recovery. Their critics argue that the White House and Fed are pushing the U.S. closer to an inflationary spiral that would derail the economy, evoking the horrors of 1970s stagflation.

Biden, Fed officials, and a broad range of economists counter that while the U.S. economy is on track for a strong, if bumpy, rebound, it’s too soon to cut off millions of unemployed and financially imperilled Americans.

“We know that the recovery from the pandemic will not be linear,” tweeted the White House Council of Economic Advisors.

The market may have also bolstered another drop in initial claims for unemployment insurance, according to data released Thursday by the Labor Department.

Weekly jobless claims fell to 376,000 in the week ending June 5, the lowest level since the week of March 14, 2020. Claims are now roughly 100,000 above pre-pandemic levels after spiking as high as 3.3 million in April 2020.

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