U.S. stocks surged early Tuesday after new inflation data provided fresh signs that prices may be cooling.
October’s producer price index (PPI) declined to 8.0% annually, down from 8.5% in September, after economists surveyed by Bloomberg forecasted 8.3%. Annual core PPI also surprised at 6.7% year over year, compared to a consensus estimate of 7.2%. The PPI report comes after other key inflation data came in lower than expected last Thursday, with consumer prices rising 0.4% in October and core prices adding 0.3%.
Yields on the benchmark 10-year Treasury note moved higher to 3.8%, while the dollar index, which measures the currency against six counterparts including the yen and euro, slipped 0.7% to $105.96.
Stocks finished lower Monday following last week’s rally as investors digested fresh commentary from Federal Reserve officials on the outlook of interest rates hikes. Fed Vice Chair Lael Brainard on Monday stated said she thought it would be “appropriate soon to move to a slower pace of increases.”
Some strategists argue that Monday’s lows weren’t due to Brainard’s commentary, but more of a signal to what could be ahead.
“The latest in a mounting wave of evidence that the FOMC will move 50 bps in December rather than the 75 bps pace they’ve been at since June,” strategists at Bespoke Investments wrote in a note to clients.
Brainard’s comments came after Fed Governor Christopher Waller reiterated Fed Chair Jerome Powell’s recent comments that policymakers have “some ways to go” before the central bank stops raising rates.
“Markets are having a tough time adjusting to where we think the terminal Fed funds rate is going and what that’s going to mean for the economy and for earnings as we roll into next year,” U.S. Bank Wealth Management Senior Investment Strategist Rob Haworth told Yahoo Finance Live on Monday.
The sentiment on stocks and global growth among fund managers surveyed by Bank of America remained “uber-bearish” with a macro outlook of “92% predicting ‘stagflation’ in 2023,” strategists led by Michael Hartnett wrote in a note on Tuesday.
Also on investors’ plate was U.S. President Joe Biden’s meeting with China President Xi Jinping, the first between the leaders of the world’s two largest economies since Biden took office.
“As leaders of our two nations, we share a responsibility, in my view, to show that China and the United States can manage our differences, prevent competition from becoming anything ever near conflict, and to find ways to work together on urgent global issues that require our mutual cooperation,” Biden said at the opening of the meeting.
Home Depot (HD) kicked off a major retailer earnings week by reporting sales that rose 5.6% in the third quarter, topping analyst expectations, as higher prices offset a slowdown in transactions. Walmart (WMT) also beat Wall Street expectations for the quarter and raised its outlook, as the retailer “significantly improved” its excess inventory. The discounter’s inventory was up 13% year-over-year in the third quarter, down from 25% in the previous quarter.
Elsewhere, cryptocurrency prices generally stabilized following last week’s bankruptcy filing by FTX. Bitcoin (BTC) trading at $16,801 Tuesday morning, while Ether (ETH), the second most-popular cryptocurrency, trading up at $1,262.96.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv