Equities advanced Wednesday to extend Tuesday's gains amid hopeful positioning heading into Thursday's US consumer prices report. The Dow Jones industrial average rose 0.8 percent, the S&P 500 gained 1.3 percent, and the NASDAQ jumped 1.8 percent. The major indexes rallied into the close and the S&P 500 ended above resistance at 3950. US Treasury yields declined, the dollar was mixed, and crude oil prices rose.

Investors appear to be pricing in a bullish US CPI report and an improving inflation picture that will allow the Federal Reserve to cut interest rates sooner than official Fed statements would suggest. Officials have been saying no rate cut is likely this year but the market is looking for one. Traders reacted bullishly in the afternoon after Boston Fed President Susan Collins, a non-voting member of the Federal Open Market Committee this year, told The New York Times she is leaning toward a 25 basis point rate increase at the next Fed meeting.

Megacaps again led the market higher. Among sectors, communications services, consumer discretionary, real estate, materials, and industrials fared best. Lagging were consumer staples and defensive plays. Among consumer discretionary, Amazon rallied, and homebuilders got a lift from analyst upgrades.

Market Reflections track market reaction to the trading day's major events. Economic data, policymaker speeches, and company news are featured in this report as well as key indexes and financial instruments.

Understanding why markets respond as they do is fundamental for an investor. Market Reflections help explain how the day's events, news, and data impact the outlook for the economy and for market prices.