By STAN CHOE
NEW YORK (AP) — Stocks rebound early Tuesday on Wall Street, and the most battered market sectors in recent days are leading the way.
The S&P 500 was up 1% on back-to-back losses driven by worries about economic collateral damage as the Federal Reserve more aggressively tackles high inflation. A report on Tuesday morning showed inflation last month was again at its highest level in 40 years, driven in particular by soaring gasoline prices, but the reading was relatively close to economists’ expectations.
Another silver lining is that inflation unexpectedly slowed in March on a month-over-month basis, after ignoring food and fuel costs. While it’s laughable to ask households to forget about soaring prices at the gas pump and at the grocery store, the Federal Reserve is paying more attention to what’s called “underlying inflation.” when setting policy, as it is less volatile. And core month-over-month inflation moderated to its lowest level since September.
“Hopefully it’s as bad as it gets,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.
“The risk is that a scorching labor market will cool under the force of these higher food, fuel and financing costs. This is a time when economic resilience will be tested.
The Dow Jones Industrial Average rose 293 points, or 0.9%, to 34,601 as of 9:48 a.m. EST. A rebound in tech stocks pushed the Nasdaq composite up 1.5%.
In recent days, stocks have been trading in the opposite direction to Treasury yields, which have risen to their highest levels since well before the pandemic. Yields jumped as investors brace for the Federal Reserve to raise short-term rates at a faster than usual pace and aggressively reduce its stock of bonds, the accumulation of which has helped to keep long-term rates low.
But Treasury yields fell on Tuesday immediately after the inflation report. The 10-year yield fell to 2.71% from 2.77% on Monday evening. It was as high as 2.83% overnight, before the release of the inflation report. The 10-year rate nevertheless remains well above the level of 1.51% where it started the year.
A measure of nervousness among stock investors also plummeted immediately after the inflation report.
Inventories elsewhere in the world were lower or mixed as unease continues to loom over markets over the war in Ukraine, China’s efforts to contain COVID outbreaks and the direction inflation and rates are heading of interest.
The price of US crude oil climbed 5.2% to $99.23, keeping inflation pressure high. Brent, the international standard, rose 5.6% to $103.99.
Higher interest rates from the Federal Reserve would slow the economy, which would hopefully reduce high inflation. Consumer prices were 8.5% higher in March than a year earlier, accelerating from February’s inflation rate of 7.9% and the highest since 1981. To reverse it, the The Fed revealed in the minutes of its last meeting that it was ready to raise short-term rates. half a percentage point, double the usual amount, in some upcoming meetings, something he hasn’t done since 2000.
The concern is that the Federal Reserve will have to be so aggressive in raising interest rates so aggressively that it forces the economy into recession.
AP Business Writer Joe McDonald contributed.