S&P 500 touches 2-month high, stocks rally on more signs of easing inflation

[view original post]

© Getty Images

MARKET SNAPSHOT

U.S. stocks were higher Tuesday afternoon, but off the session’s best levels, after more data suggested inflation may be slowing while mega-retailer Walmart offered a rosier annual forecast.

However, the Dow briefly skidded lower midsession after an Associated Press report said Russian missiles crossed into Poland and killed two people, ratcheting up geopolitical tension given Poland is a NATO country.

How are stocks are trading

  • S&P 500 index rose 33.8 points, or 0.86%, to 3,991.
  • Dow Jones Industrial Average was up 51 points, or 0.15%, at 33,587, after touching a nearly three-month high of 33,987.06 earlier.
  • Nasdaq Composite climbed 173 points, or 1.5%, to 11,370.

On Monday, U.S. stocks finished near session lows after early gains evaporated. The Dow Jones Industrial Average fell 211 points, or 0.6%, while the S&P 500 declined 36 points, or 0.9% and the Nasdaq Composite dropped 226 points, or 2%.

What’s driving markets

U.S. stocks trimmed earlier gains in afternoon trade Tuesday, despite another batch of inflation data showed that whole prices rises were slowing in October for the second straight month.

The Dow’s brief negative turn came after reports that Russian military bombarded Ukraine Tuesday and a missile crossed into Poland, a member of NATO, the Associated Press said, citing a senior U.S. intelligence official.

“Geopolitical concerns obsviously are never positive for the market,” said Peter Cardillo, chief market economist at Spartan Capital Securities.

On Tuesday, oil futures settled higher. West Texas Intermediate crude for December delivery rose to $1.05, or 1.2%, reaching $86.92 a barrel.

While markets had started to price in the toll of Russian’s nearly nine-month invasion of Ukraine, it has not priced in an potential escalation of the war, said Kent Engelke, chief economic strategist at Capitol Securities Management.

“Talk about geopolitical angst returning,” Engelke said, later adding “If there were really missiles shot to Poland and that was really not an accident, wow, that is really  increasing the scope of the war.”

While international worries may be clouding the session, there’s also encouraging domestic news.

The U.S. producer-price index climbed 8% over the 12 months through October, the Labor Department said Tuesday, easing from September’s revised 8.4% increase. Last week, stocks surged after the October consumer-price index rose more slowly than expected.

See: Wholesale prices rise slowly again and point to softening U.S. inflation

Tuesday’s PPI report helped support the notion that inflation has peaked, at least for now.

“Today, it’s really about the PPI and the market reaction to it,” Steve Sosnick, chief strategist at Interactive Brokers said in a Tuesday morning interview.

Markets ripped higher last Thursday after October’s consumer-price index showed signs of easing. The same dynamic was playing out Tuesday, but the response now has been “a bit more muted” because it’s an iteration on inflation data that investors already had been starting to see, Sosnick said.

So, is the economy really at peak inflation? It’s too early to say for sure, according to Sosnick. Still, the PPI numbers, paired with last week’s CPI reading “does add evidence to that narrative,” he added.

He’s not alone. “Bottom line, this data is further confirmation of the peak for now in inflation, evidence that we’ve been seeing for months. The question still unanswered is where does it settle out when all is said and done,” said Peter Boockvar, chief investment officer of Bleakley Financial Group.

Walmart’s third quarter earnings also were buoying markets, Sosnick said. The massive retailer’s beat on earnings offers a glimpse at the minds and wallets of many American consumers. For anyone who worries about consumers “getting highly defensive” and not spending, Walmart’s numbers are “counter evidence.”

In other news, the first face-to-face meeting between President Joe Biden and President Xi Jinping helped support stocks listed in China and Hong Kong, as some of the tensions between the world’s two largest economies were seen to be easing.

The upbeat tone from Asia, which included Taiwan Semiconductor Manufacturing Company jumping 12.2% on news Warren Buffett had bought a $5 billion stake, underpinned European bourses, which closed higher for a fourth session in a row.

Analysts increasingly expect stocks to enjoy a positive end to the year. “The near-term picture still looks positive for U.S. benchmark indices and while momentum has reached intra-day overbought levels, this doesn’t imply a selloff has to happen right away,” said Mark Newton, head of technical strategy at Fundstrat.

Philadelphia Federal Reserve President Patrick Harker said Tuesday that he favored a 50 basis-point hike to the Fed’s benchmark rate in December. Atlanta Fed President Raphael Bostic said more rate hikes will be needed, even through there have been “glimmers of hope” on inflation.

Fed Vice Chairman for Supervision Michael Barr said Tuesday that the U.S. economy is likely to slow in coming months, and more workers will lose their jobs, in Senate testimony. The Fed is working with regulators to assess risks tied to cryptocurrency markets, following the collapse of FTX and its associated companies.

In other U.S. economic data, the New York Empire State manufacturing index for November showed a gauge of manufacturing activity in the state rose 13.6 points to 4.5 this month.

The yield on the 10-year Treasury note was down 7 basis points at 3.8%. Bond yields move inversely to prices.

Companies in focus

  • Walmart shares jumped after the giant retailer swung to a net third-quarter loss, due to $3.3 billion in charges related to opioid legal settlements, but reported adjusted profit, revenue and same-store sales that were well above expectations and a full-year outlook that was above forecasts.
  • Home Depot rose after the home improvement retailer reported fiscal third-quarter earnings that beat expectations, citing strength in project-related categories, but kept its full-year outlook intact.
  • Chinese-listed technology traded sharply higher on Tuesday, including U.S.-traded ADRs for Alibaba Group Holding Baidu Inc. and JD.com Inc. The KraneShares CSI China Internet exchange-traded fund also traded substantially higher.

Jamie Chisholm contributed reporting to this article

Continue Reading