Wall Street floats through a quiet US session ahead of CPI data

Stocks and bonds made small changes on Wall Street on Tuesday as trading was quiet in anticipation of news later in the week that might affect the markets.

The S&P 500 lost 0.17 points, or less than 0.1%, to 4,108.94, its smallest one-day movement in more than a year. The majority of the index’s equities increased in value, and the Dow Jones Industrial Average also did so, rising 98.27 points, or 0.3%, to 33,684.79. To 12,031.88, the Nasdaq composite fell 52.48 points, or 0.4%.

Wall Street’s top immediate concern has been whether the Federal Reserve will continue raising interest rates in an effort to rein in runaway inflation. Rates have already been raised rapidly over the past year, which has caused some economic slowdown and pressures in the financial sector.

That’s why markets are gearing up for Wednesday’s report on inflation. Economists expect it to show inflation slowed to 5.2% in March from 6% in February. That would mean continued progress since inflation peaked last summer, but it would also still be well above the Fed’s target.

An unexpectedly high figure would probably increase traders’ anticipation that the Fed will increase rates by another quarter point at its next meeting in May. Increased rates can reduce inflation, but they also increase the possibility of a future recession and drive down the value of stocks and other investments.

Bond market traders have been expressing concern over the Fed possibly raising rates too high and then having to drop them as soon as this summer to support the economy. But the stock market has held up better because to expectations that the Fed would be able to raise rates just enough to choke off inflation without sparking a major recession.

While navigating the erratic market narrative is challenging, it is aided by the fact that rates are pricing in a more negative forecast than stocks, which are pricing in a more positive future. One of the reasons why some experts choose high-quality bonds over equities is because of this.

One of the reasons analysts anticipate this upcoming earnings reporting season to exhibit the greatest decline since the height of the epidemic in 2020 is still-high inflation. When several banks disclose their earnings for the first quarter of the year to investors on Friday, it will assist to kick off the earnings reporting season.

Investors claim that in addition to the figures that look backward, they are eager to hear what CEOs have to say about the present and future business environment. One concern is that, given all the turbulence in their industry, including the sharp increase in interest rates over the past year, banks in particular would reduce their lending.

If they do stop lending to firms, this might cause the economy to slow down even more and increase the likelihood of a recession.

After reporting a higher profit than experts had predicted for its most recent fiscal quarter, which concluded on February 28, CarMax saw a 9.6% increase. It had the biggest gain within the S&P 500, and stocks in industries whose profits are most closely tied to the economy’s strength generally rose.

Moderna, which dropped 3.1% after announcing that a late-stage clinical trial is needed for further research on its prospective flu vaccine, came out on the losing end.

Big Tech stocks also struggled. They are believed to be the most negatively impacted by rising interest rates, along with other high-growth firms, and a 2.3% decline for Microsoft was the worst drag on the S&P 500.

After the Bank of Korea maintained its policy interest rate for a second consecutive meeting, stocks in Seoul rose 1.4% in Asia. It is one of many regional central banks that are currently reducing or stopping rate rises because of indications that the economy is weakening.

The yields in the bond market remained largely stable. The yield on the 10-year Treasury note remained steady at 3.42%. It aids in determining interest rates for major loans like mortgages. The two-year yield increased from 4.01% to 4.02% late on Monday, more closely reflecting expectations for the Fed.