U.S. stocks rose modestly and Treasury yields fell on Tuesday as fresh signs that inflation cooled last month raised hopes that the Federal Reserve will slow the pace of its interest rate hikes .
Wall Street’s benchmark S&P 500 was up 0.8 percent by midafternoon in New York, paring earlier gains, while the tech-heavy Nasdaq Composite was up 1.5 percent. The S&P 500 has gained nearly 14 percent since its intraday low in the second week of October.
Tuesday’s gains followed a report showing U.S. producer prices rose 0.2 percent in October from September, compared with expectations in a Bloomberg survey of 0.4 percent. The annual rate of wholesale inflation stood at 8%, down from 8.5% in September.
“This data is further confirmation of peak inflation for now, evidence we’ve been seeing for months,” said Peter Boockvar, chief investment officer at Bleakley Financial Group.
The slowdown in factory-gate price increases comes after a report last week showed US consumer inflation was also easing, raising hopes among some investors that the Fed would slow its tightening of monetary policy, which has lifted the dollar and weighed on stocks.
U.S. government bond markets rallied: The yield on two-year U.S. Treasuries fell 0.03 percentage points to 4.38%. The yield on the benchmark US 10-year note was down 0.05 percentage points to 3.82%. Yields fall when prices rise.
Some analysts believe, however, that investors have become unduly bullish on the recent gains in Wall Street stocks.
“Daily S&P 500 returns of more than 2% tend to be more common during bear markets,” said analysts at Goldman Sachs, who believe the recent rally in bonds and risk assets was “likely overdone.”
“The stronger-than-expected recovery in inflation could support a slowdown in the pace of the hike, but risks of an extension of the hike cycle remain,” the bank added.
Fed Vice Chairman Lael Brainard said on Monday that a slower pace of rate hikes did not mean the central bank was slowing its efforts to tackle historically high inflation.
“We’ve done a lot, but we have additional work to do both to raise rates and to maintain moderation to bring inflation down to 2 percent over time,” he said, adding that while inflation data of October better than expected were “reassuring”. , it was only “preliminary”.
The debate over whether the latest rally in stocks constitutes the start of a true bull run or just a bear market surge is largely redundant in the absence of fresh economic news, said Mike Zigmont, head of trading and research of Harvest Volatility Management.
“We accept that investors are confused, but neither are they afraid,” added Zigmont. “They just got a big dose of relief [from the latest CPI data] and now they are acclimatizing to the new environment.”
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Meanwhile, Bank of America’s latest survey of global fund managers revealed that 92 percent of respondents predicted a bout of stagnation (low growth and high inflation) in 2023.
Asian markets also posted big gains after Xi Jinping and Joe Biden expressed a desire to improve US-China ties at a meeting on Monday ahead of the G20 summit in Indonesia, and Beijing moved to ease some curbs on the pandemic
Hong Kong’s Hang Seng Index rose 4.1% and is up a quarter from its low in late October. China’s CSI 300 rose 1.9%, while Japan’s Topix rose 0.4% and South Korea’s Kospi rose 0.2%.
The regional Stoxx Europe 600 added 0.4%, while London’s FTSE fell 0.2%.