Wall Street Celebrates Strong January With Gains

US Stocks are edging higher on Tuesday ahead of what many investors hope will be one of the Fed’s last rate hikes to interest rates as well as anticipated pause of quantitative tightening.

The Standard & Poor’s 500 was 0.3% higher as of 9:36 a.m. Eastern and on pace to close out its third winning month in the last four. The Dow Jones industrial average was up 44 points, or 0.1%, at 33,761 and the Nasdaq composite was 0.5% higher.

Markets got a boost after a report showed that growth for U.S. workers’ pay and benefits slowed during the end of 2022. While that’s frustrating for people trying to keep up with soaring prices for eggs and other groceries, markets see it as an encouraging sign of easing pressure on inflation.

With the pace of inflation easing since summer, virtually all of Wall Street expects the Fed on Wednesday to announce its smallest increase to interest rates since March, at 0.25 percentage points. That would be the latest stepdown after it pushed through four straight increases of 0.75 points and then a hike of 0.50 points.

Such moves try to stamp out inflation by intentionally slowing the economy and dragging down on prices for stocks and other investments. The worry is that too-high rates would cause a severe recession and drop-off in corporate profits.

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Such worries, combined with hopes for an easier Fed, have led to sharp swings in markets recently. They’ve hit not only day to day but also hour to hour. Analysts say much of this past month’s gains has been more about improving sentiment among investors than any big improvement in the economy or profits.

Treasury yields fell immediately after the release of the report on employment costs. The yield on the 10-year Treasury, which helps set rates for mortgages and other loans, dipped to 3.50% from 3.54% late Monday. The two-year yield, which moves more on expectations for the Fed, slipped to 4.22% from 4.24%.

With seemingly everyone on the same page about what the Fed will do on Wednesday, the big question is what comes afterward. The Fed has so far pledged to keep rates higher for longer to ensure inflation is truly defeated. Markets, meanwhile, are holding out hope that just one more small increase is on the way and that cuts to rates could follow late in the year.

Earnings reporting season is also approaching top gear, with McDonald’s, Exxon Mobil and other big companies headlining the day. They offered a mixed picture, much as reports have so far this reporting season.

McDonald’s fell 1.3% despite reporting stronger profit and revenue than analysts expected. What may have disappointed Wall Street was McDonald’s forecast for upcoming profit margins. They could imply inflation and cost pressures may be continuing to squeeze the company.

Caterpillar dropped 4.2% after it reported weaker profit than expected but stronger revenue. On the winning side was General Motors, which revved up by 7.2% after reporting stronger profit and revenue than expected.

In a positive sign, the International Monetary Fund said the global economy’s outlook has grown slightly brighter as China eases its zero-COVID policies and economies show surprising resilience in the face of high inflation, elevated interest rates and Russia’s ongoing war against Ukraine.

Meanwhile, a survey released Tuesday showed Chinese factory activity rebounded in January, adding to signs the world’s second-largest economy might be recovering from a painful decline.