NEW YORK –
Stocks are rallying in early trading on Wall Street on Tuesday, with areas of the market hit the hardest in recent days in the lead.
The S&P 500 rose 1% after consecutive losses fueled by concerns about collateral economic damage as the Federal Reserve tackles high inflation more aggressively. A report on Tuesday morning showed inflation last month returned to its highest level in 40 years, driven in particular by rising gasoline prices, but the reading was relatively close to economists’ expectations.
Another slight silver lining was that inflation unexpectedly slowed month-over-month in March, after ignoring food and fuel costs. While it’s ridiculous to ask households to forget sky-high prices at the gas pump and the grocery store, the Federal Reserve pays more attention to what’s called “core inflation” when setting policy because it’s less volatile. And month-on-month core inflation moderated to its slowest level since September.
“Hopefully this is as bad as it sounds,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.
“The risk is that a red-hot job market cools off under the force of those higher food, fuel and financing costs. This is a time when economic resilience will be tested.”
The Dow Jones Industrial Average was up 293 points, or 0.9%, at 34,601, as of 9:48 am Eastern time. A rally in tech stocks sent the Nasdaq Composite up 1.5%.
In recent days, stocks have been trading in the opposite direction of Treasury yields, which have risen to their highest levels since long before the pandemic. Yields rose as investors brace for the Federal Reserve to raise short-term rates at a faster-than-usual pace and aggressively pare back its treasury of bonds, the accumulation of which has helped keep long-term rates low.
But Treasury yields fell on Tuesday on the heels of the inflation report. The 10-year yield sank to 2.71% from 2.77% on Monday night. It reached 2.83% overnight, before the release of the inflation report. Nonetheless, the 10-year yield remains well above the 1.51% level at which it started the year.
A measure of nervousness among equity investors also fell in the immediate aftermath of the inflation report.
Stocks in other parts of the world were lower or mixed, as concerns continue to weigh on markets over the war in Ukraine, Chinese efforts to contain COVID outbreaks and where inflation and interest rates are headed.
US crude oil prices rose 5.2% to $99.23, keeping pressure on high inflation. Brent crude, the international standard, rose 5.6% to $103.99.
Higher interest rates from the Federal Reserve would slow the economy, which would hopefully bring down high inflation. Consumer prices were 8.5% higher in March than a year earlier, accelerating from February’s 7.9% inflation rate and the highest since 1981. To bring it down, the Fed revealed in the minutes of its latest meeting that is set to raise short-term rates. by half a percentage point, twice as much as usual, at some upcoming meetings, something it had not done since 2000.
The concern is that the Federal Reserve will have to be so aggressive in raising interest rates so aggressively that it pushes the economy into a recession.
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AP business writer Joe McDonald contributed
Reference-www.ctvnews.ca