Insights of the Trends that Stocks edge higher on Wednesday after sharp sell-off

U.S. stocks inched higher on Wednesday, recovering some losses from the previous day’s wild session that was spurred by a hotter-than-expected inflation report.

The S&P 500 added 13.32 points, or 0.3%, to 3946.01, a day after the benchmark index plummeted 4.3% in its worst selloff since June 2020. The Dow Jones Industrial Average rose 30.12 points, or 0.1%, to 31135.09. The tech-focused Nasdaq Composite gained 86.10 points, or 0.7%, to 11719.68. The indexes wobbled between small gains and losses throughout the session.

The latest consumer-price index report released on Tuesday spurred volatile moves across asset classes as investors curbed hopes that the Federal Reserve might slow its aggressive pace of interest-rate increases. The August inflation reading showed core prices, which excludes energy and food figures, accelerated from a year earlier—indicating that broad inflationary pressures strengthened. That led traders on Tuesday to dump stocks across all sectors, sell bonds and cryptocurrencies, and push the U.S. dollar higher. 

Some of Tuesday’s sharp market moves started to unwind Wednesday. The WSJ Dollar Index lost 0.3%, after notching its largest one-day jump since March 2020. Brent crude, which fell the day before, rose 1% to $94.10 a barrel.

On Wednesday, data measuring U.S. suppliers’ prices also indicated elevated inflation. The producer-price index, which measures what suppliers are charging businesses and other customers, rose 8.7% in August from a year ago. On a monthly basis, the reading declined 0.1% from July, in line with economists’ expectations.

 Energy stocks rose broadly as Brent crude rebounded. The sector was the top-gaining segment of the S&P 500 on Wednesday.

 The Fed will make its next interest-rate policy decision next week. Federal-funds futures, used by traders to bet on interest-rate moves, showed a 76% chance that the central bank will lift rates by 0.75 percentage point. And a 24% probability that the Fed will increase interest rates by 1 percentage point, according to CME Group data.

 Some investors and strategists said the market may overreact on Tuesday, especially after Fed Chairman Jerome Powell already said last month in Jackson Hole that the central bank must continue raising interest rates until it is confident inflation is under control.

 “You’ve got this tension with dip buyers versus those who are selling the rally,” said Viraj Patel, global macro strategist at Vanda Research. “I think you can paint a very nice bullish picture and find plenty of evidence to buy equities, and you can paint a very nice bearish picture and find plenty of evidence to sell. That naturally means we are going to bounce around for a bit.”

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