US stocks rallied slightly and Treasury bond yields fell on Tuesday after new signs of inflation cooling last month raised hopes that the Federal Reserve would slow the pace of its rate hikes.
The Wall Street benchmark S&P 500 was up 0.8 percent by mid-afternoon in New York, reversing previous gains, while the tech-heavy Nasdaq Composite was up 1.5 percent. The S&P 500 is up nearly 14 percent from its low in the second week of October.
Tuesday’s gain followed a report that showed U.S. producer prices rose 0.2 percent in October from September, compared to expectations in a Bloomberg survey of 0.4 percent. Annual wholesale inflation stood at 8 percent, up from 8.5 percent in September.
“These data are further confirmation of the current spike in inflation, evidence we’ve been seeing for months,” said Peter Boockvar, chief investment officer at Bleakley Financial Group.
The slowdown in factory price rises comes after a report last week showed that US consumer inflation was also declining, raising hopes among some investors that the Fed’s monetary policy tightening has lifted the dollar. and has weighted on equities will slow down.
US Treasury bond markets recovered – yields on two-year US Treasuries fell 0.03 percentage point to 4.38 percent. The return on the US 10-year benchmark fell by 0.05 percentage point to 3.82 percent. Yields fall when prices rise.
However, some analysts believe that investors have become unduly optimistic about the recent gains in Wall Street stocks.
“S&P 500 daily returns of more than 2 percent are more common during bear markets,” said Goldman Sachs analysts, who believe the recent rally in bonds and risky assets was “probably overstated.”
“The larger-than-expected inflation reset may support a slowdown in walking rates, but risks of a walking cycle extension remain,” the bank added.
Fed Vice Chairman Lael Brainard said Monday that a slower pace of rate hikes did not mean the central bank was dampening its efforts to tackle historically high inflation.
“We’ve done a lot, but we have more work to do, both in terms of raising interest rates and maintaining restraint to bring inflation down to 2 percent over time,” she said, adding that although October’s better-than-expected inflation numbers were “reassuring”. , it was only “for now”.
The debate over whether the latest rally for stocks marks the start of a real bull run or just a bear market rally is largely superfluous in the absence of new economic news, said Mike Zigmont, head of trading and research at Harvest Volatility Management.
“Let’s accept that investors are confused, but not scared either,” Zigmont added. “They just got a huge dose of relief [from the latest CPI data] and now they are getting used to the new environment.”
Bank of America’s latest Global Fund Manager Survey, meanwhile, found that 92 percent of respondents predicted a period of stagflation — low growth and high inflation — in 2023.
Asian markets also posted strong 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 took steps to ease some pandemic restrictions. to decrease.
Hong Kong’s Hang Seng index rose 4.1 percent and is up a quarter since its low point at the end of October. China’s CSI 300 gained 1.9 percent, while Japan’s Topix rose 0.4 percent and South Korea’s Kospi 0.2 percent.
The regional Stoxx Europe 600 gained 0.4 percent, while the London FTSE lost 0.2 percent.