U.S. stocks ended higher on Wednesday, as investors digested stronger-than-expected retail sales data and at the same time assessed the latest inflation report that suggested the Fed would continue to hike interest rates at an aggressive pace than previously thought. All three major indexes ended in positive territory.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) rose 0.1% or 38.78 points to close at 34,128.05 points.

The S&P 500 gained 0.3% or 11.47 points to end at 4,147.60 points. Consumer discretionary, utilities, industrials and tech stocks led the gains.

The Technology Select Sector SPDR (XLK) gained 0.5%. The Consumer Discretionary Select Sector SPDR (XLY) rose 1.2%. The Utilities Select Sector SPDR (XLU) and the Industrial Select Sector SPDR (XLI) added 0.7% and 0.6%, respectively. Nine of the 11 sectors of the benchmark index ended in positive territory.

The tech-heavy Nasdaq added 0.9% or 110.45 points to finish at 12,070.59 points.

The fear-gauge CBOE Volatility Index (VIX) was down 3.60% to 18.23. Declining issues outnumbered advancing issues by a 1.4-to-one ratio across U.S. markets. A total of 10.5 billion shares were traded on Wednesday, lower than the last 20-session average of 11.8 billion.

Investors Concerned Over Future Rate Hikes

Wall Street ended modestly higher on Wednesday in a volatile trading session. Stocks took a hit earlier in the day after January retail sales data came in strongly higher than expectations to hit almost a two-year high. The solid sales figure suggests that the economy is still resilient despite multiple rate hikes.

The solid retail sales figure came just a day after the consumer price index (CPI) report showed that the cost of living rose 0.5% month over month in January. The CPI data will once again remind the Fed that lower readings on inflation in recent times don’t guarantee a downward trajectory.

Inflation had shown signs of easing at the end of 2022 which had made investors optimistic about the Fed going slow on its rate hikes by mid-2023. However, the crisis is far from over. The latest inflation data coupled with the solid retail sales figure supports the idea that the Fed might continue to aggressively increase interest rates in the coming months in order to tame surging inflation.

However, investors are changing their reaction to reports that U.S. inflation still remains strongly high which had been impacting markets on concern that the Fed will continue to raise interest rates for a longer period.

Interestingly, the Nasdaq, which ended 2022 down 33%, has been outperforming the market this year although treasury yields have been rising significantly. This is because investors still believe that the Fed might change course in mid-2023 on its interest rate hike policy, which will help high-growth stocks. This optimistic sentiment sent tech stocks on a rally on Wednesday.

Shares of Apple Inc. (AAPL Quick QuoteAAPL - Free Report) gained 1.4%, while Amazon.com, Inc. (AMZN Quick QuoteAMZN - Free Report) ended 1.5% higher. Apple and Amazon each carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Also, retail stocks like Walmart Inc. (WMT Quick QuoteWMT - Free Report) and Dollar Tree, Inc. (DLTR Quick QuoteDLTR - Free Report) gained 0.7% and 1.5%, respectively on solid retail sales data.

Economic Data

The Commerce Department said that retail sales rose a solid 3% in January, after declining 1.1% in December and also came in higher than economists’ expectations of a rise of 1.9%.

In other economic data, industrial production remained unchanged in January, while capacity utilization declined 01% in January.

The New York Fed’s Empire State business conditions index, which is a gauge of manufacturing activity in the state, climbed 27.1 points in February to a negative 5.8.

The NAHB/Wells Fargo Housing Market’s monthly confidence index rose 7 points to 42 in February. This is the second straight month that homebuilder confidence has increased.