U.S. equities experienced a slight uptick during volatile trading on Tuesday as market participants assessed inflation metrics and prepared for upcoming quarterly earnings reports to validate stock valuations and the resilience of the U.S. economy.
Stocks received an early boost following a Labor Department announcement indicating that the producer price index increased less than anticipated in December; however, this data did not significantly alter forecasts regarding the Federal Reserve’s anticipated monetary policy trajectory for the year.
Initial gains melted away, and the three primary indices briefly dipped lower as traders looked ahead to Wednesday’s consumer price index announcement, which is expected to further influence inflation expectations and the Fed’s actions.
“While there was an early relief rally, it illustrates the prevailing uncertainty regarding the trajectory of rates and the Federal Reserve,” remarked Chris Fasciano, chief market strategist at Commonwealth Financial Network.
“Now we’ll find out what tomorrow morning reveals,” he added, in reference to the forthcoming CPI report.
The Dow Jones Industrial Average increased by 197.27 points, or 0.47%, to 42,495.92, the S&P 500 rose by 17.16 points, or 0.30%, to 5,853.64, and the Nasdaq Composite advanced by 37.38 points, or 0.20%, to 19,125.48.
The market is factoring in approximately 29 basis points of interest rate reductions from the Fed by the close of 2025, based on data from LSEG, with the probability of at least a 25 bps cut not exceeding 50% until the June session.
Heightening investor apprehension, U.S. Treasury yields remained elevated, with the yield on the benchmark 10-year Treasury note at 4.797%, close to a 14-month peak.
Quarterly earnings will commence on Wednesday with reports from major banking institutions, which are anticipated to reveal stronger earnings, driven by vigorous deal-making and trading activities. The S&P 500 bank index increased by 1.3%.
The benchmark S&P 500 is currently trading at valuations significantly above its historical long-term average, and a lackluster earnings season could jeopardize further equity gains.
The healthcare sector lagged among the 11 major S&P sectors as Eli Lilly dropped 6.7% after projecting fourth-quarter sales of the weight-loss medication Zepbound to fall short of estimates.
Kansas City Fed president Jeff Schmid indicated that the ramifications of Trump’s policies are a topic of active discussion within the central bank, asserting that it would take measures if its inflation or employment objectives were compromised.
Following a rally post-U.S. election, equities have struggled lately, with the S&P 500 declining in four out of the previous five weeks, as a robust economy, persistent inflation, and remarks from Fed officials have sparked concerns regarding the central bank being less aggressive in rate cuts than previously forecasted.
Fears regarding possible tariffs from the Trump administration that could further intensify inflation have persisted.
Boeing’s shares fell 2% after the aircraft manufacturer’s annual deliveries in 2024 reached their lowest numbers since the pandemic.
Advancing issues outweighed decliners by a ratio of 2.9-to-1 on the NYSE and 1.5-to-1 on the Nasdaq.
The S&P 500 recorded eight new 52-week highs and five new lows, while the Nasdaq Composite noted 34 new highs and 119 new lows.
