S&P, Dow, Nasdaq recover despite inflation sign

Stocks ticked higher Wednesday on Wall Street as hopes for a resilient economy jousted with worries about inflation after a much stronger reading than expected on U.S. retail sales.

The S&P 500 rose 0.3% after swinging from early losses to gains through the day. The Dow Jones Industrial Averaged edged up 0.1%, while the Nasdaq composite rose a more forceful 0.9%.

Sales at U.S. retailers jumped by more than expected last month, even as shoppers contended with higher interest rates on credit cards and other loans. The surprising strength offers hope that the most important part of the U.S. economy, consumer spending, can stay afloat despite worries about a possible recession. It’s the latest piece of data to show the economy remains more resilient than feared.

At the same time, though, the strong buying potentially adds more fuel to consumer inflation, which a report earlier this week showed is cooling by less than expected. Upward pressure on inflation could force the Federal Reserve to stay more aggressive in keeping interest rates high.

High rates can drive down inflation, but they also drag on investment prices and raise the risk of a painful recession.

“Will it lead to that traditional recession or a shallow recession, or will we power through it and have more strong growth with still-high rates?” asked Tom Hainlin, national investment strategist at U.S. Bank Wealth Management. “That’s still the unknown, which is how resilient can the consumer be in this higher for longer” rate environment.

“It seems like both consumers and corporate America came into this in pretty good shape and so far are holding out OK,” he said.

The worries about higher rates and a firmer Fed have been most evident in the bond market, where yields on Treasurys have jumped since a report two weeks ago showed the U.S. job market remained stronger than expected.

The yield on the two-year Treasury, which tends to track expectations for the Fed, briefly jumped toward 4.70% and its highest level since November after the retail sales report, up from less than 4.60% overnight and from 4.62% late Tuesday. It then eased back to 4.60%.

The 10-year yield, which helps set rates for mortgages and other important loans, rose to 3.79% from 3.75% late Tuesday.

The next big milestone for the market will likely be the Fed’s meeting in late March, when policymakers will give their latest forecasts for where interest rates will be at the end of the year, Hainlin said. That could lead to choppy trading in markets until then, as investors try to guess which way it will go.

On Wall Street, shares of Airbnb Inc. jumped 13.4% Wednesday after reporting stronger profit and revenue for its latest quarter than analysts expected. It also said trends remain encouraging into the new year, and it gave a forecast for revenue that topped Wall Street’s.

On the losing end were stocks of energy producers, which fell 1.8% for the worst performance by far of the 11 sectors that make up the S&P 500.

One of the sharpest drops came from Devon Energy Corp., which fell 10.5% after reporting weaker profit for the latest quarter than expected.

This earnings reporting season has been muted, with many companies reporting pressure on their profits from higher costs and interest rates.

All told, the S&P 500 gained 11.47 points to 4,147.60. The Dow rose 38.78 points to 34,128.05, and the Nasdaq climbed 110.44 points to 12,070.59.

In stock markets abroad, Turkey’s market jumped nearly 10% after trading reopened after a closure caused by the devastating earthquake in the region.