Stock rally continues as investors breathe a sigh of relief about inflation

Stocks closed higher on Wednesday, boosted by Congress passing President Joe Biden’s $1.9 trillion stimulus package.

Another Thursday, another batch of devastating jobless claims.

For nearly a year, the weekly first-time claims for unemployment benefits have been higher than they were even during the peak of the Great Recession. Tomorrow's report will be no exception.

Economists expect another 725,000 initial claims, a slight improvement from 745,000 in the week prior. Continued claims, which count those submitted for at least two weeks in a row, are forecast at 4.2 million, down from 4.3 million.

Neither of these numbers include benefit applications filed under the government's pandemic programs, including the Pandemic Unemployment Assistance program for those who can't get regular jobless aid, such as the self-employed.

With inflation concerns eased for now, investors are turning their focus to positive news for the economic recovery. 

The Dow was up more than 520 points and on track for a record close after the House of Representatives approved the $1.9 trillion coronavirus relief plan — paving the way for President Joe Biden to sign his top legislative priority into law later this week and deliver aid to most American households.

Key features of the plan include:

The stock market is a mixed bag today.

At the opening bell, the Nasdaq Composite rallied the most, but that moment has come and gone. The tech-heavy index is down 0.1% in the early afternoon.

Meanwhile, the Dow has rallied some 450 points, or 1.4%, putting it on track to reach a new all-time high.

The S&P 500 is up 0.6%.

Going electric is all the rage in the car manufacturing world. Subaru is no exception.

"If the market clearly goes that way, we certainly do," said Tom Doll, CEO and President of Subaru of America. "Clearly, the [Biden] Administration is signaling that they would like us to go more towards electric vehicles and infrastructure will help to do that."

"By 2030 at least 40% of our business is going to be electric or hybrid," Doll said.

The car maker is off to "a fantastic start" in 2021, Doll said on the CNN Business digital live show Markets Now, even after its production was briefly shut down during the height of the pandemic last year.

"[The pandemic] didn't affect our long-term planning but it affected our short-term production," Doll said.

Subaru expects to sell more than 16 million vehicles this year.

Inflation is the bogeyman of Wall Street at the moment.

Investors worry that a sudden jump in consumer prices is going to force the Federal Reserve to raise interest rates out of nowhere. This would be bad news for stocks and good news for bond yields. But maybe this worry is a bit overdone...

"People have to remember to apply some perspective when they look at interest rates," said Brian Belski, chief investment strategist at BMO Capital Markets.

With the Fed's benchmark rates still near zero and the 10-year US Treasury bond yielding 1.52%, calling rates 'high' isn't really accurate.

"When interest rates rise from an exceedingly low level the economy is improving. And if the economy is improving, [company] earnings improve," Belski said. So maybe higher inflation could actually be good for stocks.

"I think people jump to conclusions when they hear a scary word," Belski added. "We’re nowhere close to any kind of inflation pressures. The Fed will continue on what it’s doing well into 2023 until we see massive, massive gains in employment. And again we’re several quarters away from that."  

The Senate has passed President Joe Biden's $1.9 trillion stimulus package and the House is due to vote on it shortly.

Greg Valliere, chief US policy strategist at AGF Investment calls the stimulus package "lavish," but also thinks there will be attempts to have some of pandemic benefits last longer.

"I feel confident in saying not since [President] Lyndon Johnson have we seen such a dramatic increase in spending," Valliere said on the CNN Business digital live show Markets Now.

"The problem is the Lyndon Johnson Great Society spending ended with stagflation," which is defined as rising inflation but stagnating economic growth, he said.

Even though Valliere believes that Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen will know the warnings signs, there is a real risk that inflation will spike, Valliere said.

As for raising interest rates, Valliere said that "I have to take [Powell] at his word. I think the rest of this year the Fed will continue with asset purchases...I think it's 2023 before they seriously begin considering hiking rates."  

Remember GameStop? From last month's madness? If you thought we were done with that chapter of trading, you're not alone.

But little did we know.

As the market is rallying, GameStop (GME) and other "meme stocks" haven't been left behind. Shares soared enough — more than 41% — that the New York Stock Exchange had to briefly halt their trading.

GameStop's peak today was $348.50, just above its record closing high from late January. And then it fell again, down nearly 20% midday. Phew.

Why's the market up today? This morning's consumer price report soothed investors' worries about a sudden inflation spike. Instead the market has time to focus on good news, like the stimulus package passed over the weekend.

The Business Roundtable, an alliance of US CEOs, warned Wednesday it will fight the Democrats' push to unwind the Trump tax cuts.

"The Roundtable will be actively opposing efforts to raise corporate taxes," Josh Bolten, the group's CEO, said in response to a question from CNN Business during a press briefing.

During the campaign, President Joe Biden proposed raising the corporate tax rate to 28%. That would be up from 21% currently but below the 35% it stood at prior to the GOP tax overhaul.

Biden officials have indicated they will look at the corporate tax rate as a way to raise revenue for an infrastructure package.

"After decades of decades of having an uncompetitive tax rate, we have finally arrived at a competitive US tax rate," said Bolten, who served as a chief of staff to former President George W. Bush, as well as his director of the Office of Management & Budget.

Bolten pointed to the "good fruits" of the Trump tax cuts, including a strong stock market, historically low unemployment and strong investment.

The Trump tax law failed to live up to the hype, however, with many businesses sharing the windfall with shareholders via large stock buybacks.

The debate over a fair corporate tax rate will heat up later this year, pitting Democrats against the business community.