U.S. stocks rose and Treasury yields fell on Tuesday as further signs of slowing inflation last month bolstered hopes that the Federal Reserve would slow the pace of its interest rate hikes.
Wall Street’s benchmark S&P 500 ended the day up 0.9%, after paring previous gains, while the tech-heavy Nasdaq Composite rose 1.4% . The S&P 500 has gained nearly 14% from its intraday low in the second week of October.
Tuesday’s gains followed a report showing U.S. producer prices rose 0.2% in October from September, compared to a Bloomberg poll expectation of 0.4%. The annual wholesale inflation rate was 8%, down from 8.4% in September.
“These data are further confirmation of the current spike in inflation, evidence that we have been observing for months,” said Peter Boockvar, chief investment officer at Bleakley Financial Group.
The slowdown in the rise in factory gate prices comes after a report last week showed that consumer inflation in the United States was also falling, raising hopes among some investors that the Fed would slow its pace. tightening of monetary policy, which pushed the dollar higher and weighed on equities.
US government bond markets rallied – the yield on the two-year Treasury note slipped 0.06 percentage points to 4.35%. The yield on the benchmark US 10-year note fell 0.9 percentage points to 3.78%. Yields fall when prices rise.
However, some analysts believe investors have become unduly optimistic about recent gains in Wall Street stocks.
“S&P 500 daily returns above 2% tend to be more common during bear markets,” said Goldman Sachs analysts, who believe the recent rally in bonds and risky assets was “probably overblown.”
“The larger-than-expected inflation reset could support a slower pace of upside, but risks of an extended upside cycle remain,” the bank added.
Fed Vice Chair Lael Brainard said on Monday that a slower pace of rate hikes did not mean the central bank was slowing down its efforts to tackle historically high inflation.
“We have done a lot, but we have more work to do both to raise rates and maintain moderation to bring inflation down to 2% over time,” she said, adding that if the October’s better-than-expected inflation data was “reassuring”. , it was only “preliminary”.
The debate over whether the latest rise in stocks is the start of a real bull run or just a bear rally is largely redundant in the absence of fresh economic news, said Mike Zigmont, head of trading and of research at Harvest Volatility Management.
“Let’s just accept that investors are confused, but they aren’t scared either,” Zigmont added. “They just had a huge dose of relief [from the latest CPI data] and now they are acclimatizing to the new environment.
Bank of America’s latest survey of global fund managers, meanwhile, found that 92% of respondents predicted a crisis of stagflation – low growth and high inflation – in 2023.
Asian markets also made solid gains after Xi Jinping and Joe Biden signaled their desire to improve US-China relations at a meeting on Monday ahead of the G20 summit in Indonesia, and Beijing moved to ease certain brakes on the pandemic.
Hong Kong’s Hang Seng index rose 4.1% and rose a quarter since its low in late October. China’s CSI 300 gained 1.9%, while Japan’s Topix rose 0.4% and South Korea’s Kospi gained 0.2%.
The regional Stoxx Europe 600 gained 0.4%, while London’s FTSE fell 0.2%.