S&P, Nasdaq, Dow end higher as focus turns towards CPI data, bank earnings

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U.S. stocks on Tuesday ended trading on a surer footing after struggling for direction through the morning.

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Investors overlooked a lack of comments from Fed chair Powell on monetary policy and turned their focus towards inflation data and bank earnings later this week.

After trading mixed through most of the day, the three major indices pushed higher after mid-day, helped by gains in heavyweight communication services and consumer discretionary stocks. 

The tech-heavy Nasdaq Composite (COMP.IND) ended 1.01% higher at 10,742.63 points. The benchmark S&P 500 (SP500) advanced by 0.70% to end at 3,919.25 points, while the blue-chip Dow (DJI) added 0.56% to settle at 33,704.10 points. 

Of the 11 S&P sectors, ten ended the session in the green, led by Communication Services and Consumer Discretionary. Consumer Staples was the only loser.

Powell in a speech at an international symposium said that independence is critical to central banks achieving their mandates in that it insulates monetary policy decisions from short-term political considerations. However, the central bank chief did not make any specific comments on the U.S. economy or the path of the Fed’s rate hikes.    

According to the CME FedWatch tool, markets are pricing in a 78.2% probability of a 25 basis point hike at the Fed’s February meeting, with a 21.8% probability of a 50 basis point hike. 

However, ING in a research note said that “[Powell’s] attempts to impress his hawkish view on markets in recent months ended in failures. Recent data have, on balance, made his job even more difficult.”

“For now, focus is on the size of the next hike. Markets think 25bp is more likely, and both [Atlanta Fed president Raphael] Bostic and [San Francisco Fed chief] Mary Daly said yesterday this is one of the options on the table. But the next step absent an effective pushback from the Fed is for the curve to price out any subsequent hikes, or even to price no more hike in this cycle. Markets don’t need much encouragement to see the dovish side of everything,” ING added.

Commentary from important figures and brokerages have been on the negative side. JPMorgan CEO Jamie Dimon in an interview said that the U.S. could enter a “Goldilocks mild recession” and that the Fed many not pivot on its interest rate increases.

UBS said that it had turned pessimistic on the prospect of a soft landing for the economy and that it now expects a hard landing. Meanwhile, Wells Fargo predicted that the S&P 500 (SP500) would see more pain in the near-term amid technical headwinds. 

Investors are now looking ahead to Thursday’s consumer price index report, which is expected to show some moderation in inflation and give the Fed some room to start slowing its pace of rate hikes.

“The stock and bond markets are anxiously awaiting the release of the December consumer price index data on Thursday, that could determine the Fed’s next interest rate move,” Seeking Alpha contributor Andrew Hecht said in an emailed statement.     

“Meanwhile, early 2023 rallies in gold, crude oil, copper, and other metals are signs that supply-side inflation remains a clear and present danger caused by geopolitical factors beyond the U.S. central bank’s reach. Equity investors are looking for profitable companies as dark inflationary and recessionary clouds have covered blue-sky investments that yield only the promise of future growth and earnings,” Hecht added. 

Yields ended the session higher. The 10-year Treasury yield (US10Y) rose 10 basis points to close at 3.62% and the 2-year yield (US2Y) rose 5 basis points to close at 4.25%.

Among stock movers, Accolade (ACCD) and Bed Bath & Beyond (BBBY) were among the top two percentage gainers on the Nasdaq Composite (COMP.IND) after their quarterly results. 

Illumina (ILMN) was among the top percentage losers on the S&P 500 (SP500) after issuing disappointing guidance.

Virgin Orbit (VORB) tumbled after its rocket failed to reach orbit.

Now read: S&P, Nasdaq, Dow tick higher after Powell’s premarket speech

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