US stocks rise in choppy session as investors see smaller rate hikes after cooler December inflation

• US stocks rose Thursday after a choppy session focused on the December inflation report. 
• Monthly headline inflation fell 0.1% but the core index excluding volatile energy and food prices rose 0.3%. 
• Investors priced in bullish expectations that the Fed will downshift its February rate hike. 

US stocks ended Thursday's volatile session higher as overall cooling in consumer price inflation prompted investors to bolster bets the Federal Reserve will issue smaller rate hikes in 2023. 

Wall Street's major indexes swung between gains and losses, but the S&P 500 and the Nasdaq Composite emerged with their third and fifth consecutive wins, respectively. The Nasdaq Composite closed above 11,000 for the first time in four weeks. The energy group on the S&P 500 topped advancing sectors, with oil prices rising on the back of a falling dollar after the release of the final CPI report for 2022. 

Here's where US indexes stood at the 4:00 p.m. closing bell on Thursday: 

•  S&P 500: 3,983.09, up 0.34% 
• Dow Jones Industrial Average: 34,189.25, up 0.64% (216.24 points)
• Nasdaq Composite: 11,001.10, up 0.64%

Expectations the Fed will downsize its February 1 interest rate increase to 25 basis points soared. Those moves arrived after the Bureau of Labor Statistics said December headline inflation fell 0.1% month over month and the year-over-year rate of 6.5% was down from 7.1% in November. 

But there's also some stickiness at the core level. The core index excluding energy and food prices rose 0.3%, higher than 0.2% in November. The BLS said shelter costs were the "dominant factor" in the monthly increase in the core index. 

"But bottom line, the weakening trend of inflation should convince the Fed to further downshift the pace of rate hikes in the upcoming meeting," Barry Gilbert, asset allocation strategist at LPL Financial, in a note. 

"The labor market must significantly cool before the Fed could appease markets by cutting rates the latter half of this year. Our base case is the economy will slow enough for the Fed to consider cutting rates sometime in the second half of this year," Gilbert wrote.

Here's what else is happening today:

• Bed Bath & Beyond shares rocketed higher and are in the midst of a massive short-squeeze as the retailer faces a  potential bankruptcy. 
• Sam Bankman-Fried said a "very substantial recovery" for FTX International is still possible. Meanwhile, here's what Alameda Research's balance sheet looked like in 2021 and 2022, according to the disgraced former crypto exec. 
• Wharton Professor Jeremy Siegel says the Fed needs to stop hiking interest rates now and end its aggressive inflation-fighting policy. 
• Crypto lender Genesis reportedly owes creditors $3 billion and is considering the sale of its parent company's venture assets to raise funds. 
• Coinbase's rating was downgraded further into junk territory by S&P Global Ratings, which said the crypto exchange is facing a profit hit. 
• The US Justice Department is investigating two brothers behind a solana stablecoin exchange that reportedly used 11 fake identities to triple-count deposits. 
• FTX's bankruptcy judge has scrapped the failed crypto exchange's $135 million deal to sponsor the Miami Heat's home arena.

In commodities, bonds, and crypto:

• West Texas Intermediate crude gained 1.4% to $78.45 per barrel. Brent crude, the international benchmark, rose 1.7% to $84.06.  
• Gold tacked on 1.2% to trade at $1,900.30 per ounce. 
• The 10-year Treasury yield fell 12 basis points to 3.42%.
• Bitcoin jumped 7.5% to $18,880.11.