Stock Market Today: Stocks Rise as Inflation Eases

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Stocks initially struggled for direction Thursday following the release of the December Consumer Price Index (CPI). However, once investors decided they liked what they saw, the major market indexes shot higher.

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The Labor Department this morning said that the CPI was up 6.5% year-over-year in December, as prices rose at their slowest pace in six months. Core CPI, which excludes volatile energy and food prices, increased 5.7% on an annual basis, the lowest reading since December 2021.

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Wall Street's top minds were quick to weigh in after the release of the December inflation report, including Anthony Denier, CEO of Webull, a commission-free trading platform. "All the CPI numbers came in exactly as expected," Denier says. "While the CPI didn't overdeliver, it's moving in the right direction, and we hope the trend down continues. While this is a good trend, it won't stop the Fed from continuing to raise rates."

Still, in the wake of today's inflation update, market expectations for the Federal Reserve to deliver a 25 basis point (0.25%) interest rate hike at its February meeting jumped to 95.2% from yesterday's 76.7%, according to CME Group. This would mark the lowest increase in the Fed's benchmark rate since March 2022. (The central bank issued four consecutive 0.75% rate hikes, followed by a 0.5% increase at its last meeting in December.)

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Today's data were generally well-received on Wall Street, with the major benchmarks finishing the day with solid gains. The Dow Jones Industrial Average added 0.6% to 34,189 and the S&P 500 rose 0.3% to 3,983. Meanwhile, the Nasdaq Composite closed up 0.6% at 11,001, bringing its daily win streak to five.

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The "key" part of today's inflation report is that the Fed's interest rate hikes worked, says Wes Gottesman, market advisor at TradeZing. "However, whenever the Fed discusses increasing the rates, market volatility ensues." And with the central bank likely to keep raising rates, at least through its next two meetings, "we will expect to see further volatility," he adds.

As such, investors should remain level-headed in 2023, Gottesman says. This can include exploring the best dividend stocks, which can help offset unexpected market declines with steady and reliable income. Low-volatility stocks and low-volatility ETFs will also add doses of defense to your portfolio.

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With over a decade of experience writing about the stock market, Karee Venema is the senior investing editor at Kiplinger.com. She joined the publication in April 2021 after 10 years of working as an investing writer and columnist at a local investment research firm. In her previous role, Karee focused primarily on options trading, as well as technical, fundamental and sentiment analysis.