(In paragraph 7, updates CME likelihood of 100 bps rate hike)
By Stephen Culp
NEW YORK (Reuters) - Wall Street ended a directionless session higher on Wednesday as an on-target inflation report largely stanched the flow of Tuesday's sell-off and investors pressed the "pause" button.
All three indexes wavered throughout the day, but ultimately ended in positive territory. They all failed to meaningfully recover ground lost in Tuesday's carnage, which wrought their largest percentage plunges in more than two years.
"Today is a lick-your-wounds day, after taking body blows yesterday," said Ryan Detrick, chief market strategist at Carson Group in Omaha, Nebraska. "It’s a day of rest and that’s somewhat of a welcome sign."
The Labor Department's producer prices (PPI) data landed close to consensus estimates and provided some relief in the aftermath of Tuesday's market-rattling CPI print, which came in hotter than expected.
"The inflation debate continues and yesterday was a harsh reminder that this a tough battle and the Fed needs to remain aggressive to put a lid on the widespread inflationary prices we’re seeing," Detrick added.
The PPI report offered reassurance that inflation is indeed on a slow, downward trajectory.
But it still has a long way to go before it approaches the Federal Reserve's average annual 2% inflation target, and while financial markets have fully priced in an interest rate hike of at least 75 basis points at the conclusion of the FOMC's policy meeting next week, they see a 22% likelihood of a super-sized, 100 basis-point increase, according to CME's FedWatch tool.
Two-year U.S. Treasury yields, which reflect interest rate expectations, extended Tuesday's rise. [US/]
The size and duration of further interest rate hikes going forward have many market observers concerned over the lagging effects of the Fed's tightening phase, with some viewing recession as unavoidable.
The transportation sector, seen as a barometer of economic health and which provides a glimpse into the supply side of the inflation picture, was weighed down by rail stocks in the face of a potential strike.
"Does the White House really want rails to shut down and impact supply chains even more, less than two months before midterm elections?" Detrick asked. "We're optimistic they can keep rails open."
Railroad operators Union Pacific, Norfolk Southern and CSX Corp lost 3.7%, 2.2% and 1.0% respectively, even as Labor Secretary Marty Walsh met with union representatives in Washington in talks aimed at preventing a rail shutdown.
The Dow Jones Industrial Average rose 30.12 points, or 0.1%, to 31,135.09, the S&P 500 gained 13.32 points, or 0.34%, to 3,946.01 and the Nasdaq Composite added 86.10 points, or 0.74%, to 11,719.68.
Six of the 11 major sectors of the S&P 500 advanced, with energy stocks leading the gainers with an assist from rising crude prices due to supply concerns. [O/R]
Starbucks Corp shares jumped 5.5% after the company upped its three-year profit and sales outlook.
Tesla Inc bounced back from Tuesday's drop, advancing 3.6% on the same day President Joe Biden announced $900 million in funding for electric vehicle charging stations.
Advancing issues outnumbered declining ones on the NYSE by a 1.05-to-1 ratio; on Nasdaq, a 1.06-to-1 ratio favored decliners.
The S&P 500 posted 2 new 52-week highs and 30 new lows; the Nasdaq Composite recorded 26 new highs and 219 new lows.
Volume on U.S. exchanges was 10.90 billion shares, compared with the 10.33 billion average over the last 20 trading days.
(Reporting by Stephen Culp in New York; Additonal reporting by Ankika Biswas, Devik Jain and Sruthi Shankar in Bangalore; Editing by Matthew Lewis)