Silver lining in inflation report helps send stocks higher

NEW YORK –

Wall Street is seeing stocks rebound Tuesday. The markets that have been the most affected in recent days are leading the charge.

The S&P 500 was 1% higher following back-to-back losses driven by worries about the economic collateral damage as the Federal Reserve tackles high inflation more aggressively. A Tuesday morning report showed that inflation reached its highest level in recent generations due to soaring gasoline prices. However, the reading was not far from economists’ expectations.

Another silver lining was the fact that inflation wasn’t as bad as economists thought, even though they ignored fuel and food costs. It’s absurd to ask households to forget about the soaring prices of gasoline and food at the grocery store. However, the Federal Reserve pays more attention what’s called “core inflation”Because it is less volatile, you can use it to set policy. Core inflation on a monthly basis moderated to its lowest level since September.

“Hopefully this is as bad as it gets,”Brian Jacobsen, Senior Investment Strategist at Allspring Global Investments, said the following:

“The risk is that a red hot labor market grows cold 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 0.6% higher at 34,517 as of 10:27 a.m. Eastern. It was up 209 points. The Nasdaq composite rose 1.6% due to a rebound in technology stocks.

Recent stock trading has been in opposition to Treasury yields which have risen to their highest levels since before the pandemic. Yields rose as investors expected the Federal Reserve to raise short-term interest rates at a faster rate than usual and to reduce its stock of bonds that helped keep longer-term rates low.

The inflation report prompted a pullback in Treasury yields on Tuesday. The 10-year yield fell to 2.70%, from 2.77% on Monday. It was as high at 2.83% overnight, just before the inflation report’s publication. The 10-year yield is still well above 1.51%, where it began the year.

Stock investors experienced a decrease in their anxiety immediately after the inflation report.

Stocks in other parts of the world were lower, or mixed, as markets remain uneasy about the war with Ukraine, Chinese efforts against COVID outbreaks, inflation, and where the future is heading.

South Korea’s Kospi declined 1% and Japan’s Nikkei225 lost 1.8%. Stocks in Shanghai rose 1.5%. Europe’s DAX fell 0.4% in Germany, while the French CAC 40 slipped 0.3%, and the FTSE 100 dropped 0.7% in London.

The price for U.S. crude oil increased 5.8% to $99.73. This keeps inflation under pressure. Brent crude, an international standard for oil, rose 5.7% and reached $104.14.

Higher interest rates from Federal Reserve would slow down the economy, which would hopefully reduce high inflation. Consumer prices increased 8.5% in March from a year prior, an acceleration from February’s 7.9% rate of inflation and the highest level since 1981. The Fed announced in minutes of its latest meeting that it was ready to hike short-term rates half a percentage point, twice the usual amount, at some future meetings. This is something it hasn’t done since 2000.

The Federal Reserve could be so aggressive in raising interest rates that it causes a recession, which is a concern.

All types of investments are also under pressure due to higher interest rates, with the most costly being the hardest hit. This is because investors who earn more interest to own safe bonds are less likely to pay higher prices to acquire riskier stocks. In particular, technology and other high growth stocks have been the stock market’s biggest winners in recent years.

On Tuesday tech stocks were the strongest force lifting the S&P 500, as Apple, Microsoft and Nvidia all rose at least 1%.

Stocks could be subject to more swings as companies report earnings for the first 3 months of the year. The reporting season will be kicked off Wednesday by JPMorgan Chase, Delta Air Lines, and other big-name businesses.

As companies raised the prices of their products and services enough for profit margin protection, earnings managed to maintain record levels until the end last year. However, inflation is likely to accelerate further.

American Airlines Group announced Tuesday that it expects slightly higher revenue for its first quarter than it previously anticipated. However, it stated that it expects cost trends to be at the higher end than it had previously predicted, after excluding fuel expenses.

The airline’s stock rose 0.7%

Stock prices can swing dramatically for many reasons in the short-term. However, they tend to follow the path corporate profits over long periods.

——

Joe McDonald, AP Business writer, contributed