S&P 500 hits new record high despite inflation surge

Stocks sent the S&P 500 index to a record high Thursday morning even after government data showed the fastest rate of inflation in more than a decade.

The S&P 500 opened 0.7 percent higher Thursday, hitting 4,249 just an hour following a Labor Department report showing a 5 percent annual increase in consumer prices last month. The Dow Jones Industrial Average rose roughly 0.7 percent, and the Nasdaq composite gained 0.8 percent.

Inflation data for May showed prices rising slightly higher than economists had expected. Even so, much of the jump in prices was driven by supply constraints that many economists believe will be temporary.

While the stock market often responds negatively to rising inflation, Thursday’s open indicated at least some level of comfort on Wall Street that the Federal Reserve won’t hike interest rates sooner than 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 [consumer price index] 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,” he added.

Republican lawmakers and inflation hawks have blasted President Biden and the Fed for not pulling back on the fiscal and monetary support they’ve pumped into the economy amid the ongoing recovery from the coronavirus recession. Critics argue that the White House and central bank 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 economy is on track for a strong, if bumpy, rebound, it’s too soon to cut off jobless benefits to millions of unemployed and financially imperiled Americans.

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

A separate report from the Labor Department on Thursday morning showed another drop in initial claims for unemployment insurance.

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.