Wall St jumps on optimism before key inflation report

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By Caroline Valetkevitch

NEW YORK (Reuters) - U.S. stocks ended with strong gains on Wednesday, led by a jump in the Nasdaq as investors were optimistic ahead of an inflation report that could give the Federal Reserve room to dial back on its aggressive interest rate hikes.

The much-anticipated report due on Thursday is projected by economists polled by Reuters to show U.S. consumer prices likely grew 6.5% year-on-year in December, moderating from a 7.1% rise in November.

Among sectors, real estate and consumer discretionary were the day's strongest performers.

The S&P 500 is up so far for 2023 after falling sharply last year. Hopes that the Fed could soon pause its cycle of rate hikes have boosted the market in recent sessions, even as comments by some Fed officials have supported the view that the central bank needs to remain aggressive in raising rates to fight inflation.

"Investors are anticipating that we're closer to a pause than at any other point last year," said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma. He said that would be welcomed by the market.

Also, "any time you have a down year, it's not surprising many times to have a reversal at the start of the new year," he said.

According to preliminary data, the S&P 500 gained 50.06 points, or 1.28%, to end at 3,969.50 points, while the Nasdaq Composite gained 189.07 points, or 1.76%, to 10,931.70. The Dow Jones Industrial Average rose 263.24 points, or 0.78%, to 33,967.34.

Money market participants see a 75% chance the Fed will raise the benchmark rate by 25 basis points in February.

This week also marks the start of the fourth-quarter earnings season for S&P 500 companies, with overall S&P 500 earnings expected to have declined year-over-year.

The biggest U.S. banks, which kick off the season later this week, are expected to report lower quarterly earnings as risks of a recession rise due to monetary policy tightening.

Goldman Sachs (NYSE:GS) began laying off staff on Wednesday in a sweeping cost-cutting drive, a source familiar with the matter said.

Retailer Bed Bath & Beyond Inc (NASDAQ:BBBY) sharply extended recent gains despite bleak quarterly results, with some investors speculating it could be a potential acquisition target.