The U.S. stock market showed slight gains on Tuesday, gearing up for a relatively calm session before potentially impactful events later in the week.
Early trading saw the S&P 500 edging up by 0.3%, following a stagnant performance the previous day. The Dow Jones Industrial Average rose by 67 points, or 0.2%, as of 9:35 a.m. Eastern time, while the Nasdaq composite climbed by 0.4%.
Oil prices remained steady, and there were minor fluctuations in Treasury yields, with traders preparing for upcoming market-moving reports, notably Wednesday’s eagerly awaited inflation update for U.S. consumers. Additionally, prominent U.S. corporations are set to unveil their first-quarter profit reports.
A key concern on Wall Street is whether inflation will moderate sufficiently to prompt the Federal Reserve to implement interest rate cuts, a move anticipated by traders. However, recent stronger-than-expected economic data has led to doubts, with market participants now expecting only two or three rate cuts this year, down from initial projections of six or seven, as per data from CME Group.
With the Fed’s benchmark interest rate at its highest level in over two decades, there’s apprehension that prolonged high rates could trigger a recession.
Should the number of rate cuts diminish this year, the spotlight will be on companies to deliver robust profit growth to justify the significant stock price gains witnessed since autumn. The S&P 500 surged by more than 20% from November through March, hitting multiple records along the way. Critics argue that stock valuations appear lofty by various metrics, necessitating either profit growth or interest rate reductions to rationalize them.
Analysts at Bank of America anticipate Wednesday’s inflation report to indicate a cooling trend, excluding volatile food and energy prices. Such a development would likely heighten expectations for a rate cut in June, a scenario currently seen as marginally more probable than not by the market.
Despite concerns about oil price increases potentially fueling inflation, Bank of America rates strategist Meghan Swiber noted that oil prices would need to rise significantly beyond levels observed even during the peak of the Russia-Ukraine commodity price spike to exert a substantial impact on core inflation.
Metal prices, including gold, have also surged this year, with mining companies experiencing notable gains in the S&P 500. Notable performers include Newmont, up by 3.3%, and Freeport-McMoRan, gaining 3%.
Railroad company Norfolk Southern saw its shares rise by 1.9%, despite reporting preliminary first-quarter earnings below analysts’ estimates. The company also reached a $600 million settlement in a class-action lawsuit related to a train derailment last year in eastern Ohio, aiming to resolve all claims within specific radii of the incident.
In the bond market, the yield on the 10-year Treasury edged down to 4.38% from 4.42% on Monday.
In Europe, stock indexes exhibited mixed performance ahead of the European Central Bank’s interest rate decision on Thursday, with many investors anticipating no change.
Asian markets also saw mixed results, with Tokyo’s Nikkei 225 surging by 1.1%, while South Korea’s Kospi fell by 0.5%.
Featured Image: Freepik @ wirestock
