S&P 500, Nasdaq aims to catch 3-session slippage as bond yields fall in hopes of inflation peaks

US stocks were higher on Wednesday afternoon, led by Nasdaq, as bond yields fell in hopes that inflation may have peaked despite disappointing earnings from JPMorgan Chase & Co.

Stock market bulls are looking for corporate earnings reports to remove focus from the rise in inflation that has raised expectations of Federal Reserve rate hikes and has sent government interest rates significantly higher so far this year.

What happens
  • Dow Jones Industrial Average DJIA
    was up 233 points or 0.7%, at 34,460.

  • S&P 500 SPX
    increased 33 points, or 0.7%, to 4,429.

  • Nasdaq Composite COMP
    jumped 195 points, or 1.5%, to 13,566.

On Tuesday, the Dow, S&P 500 and Nasdaq Composite erased strong early gains to end lower.

What drives the markets

Government interest rates were in retreat on Wednesday, giving some support to technology stocks and the Nasdaq Composite Index as investors hit a peak in US inflation despite a rise in wholesale prices in March.

“It’s a bit of a relief rally amid falling bond yields,” George Catrambone, head of America’s trading at DWS Group, said by phone. “But the history of inflation is still staring us straight in the face.”

The US producer price index, which measures the price of wholesale goods and services, rose 1.4% in March, mainly due to higher gas and food prices, signaling that US inflation is likely to remain close to the highest level for 40 years through spring. Economists polled by The Wall Street Journal had predicted a 1.1% increase. The increase in wholesale prices over the past year jumped to 11.2%, from 10% in the previous month – the highest level since the early 1980s.

The PPI reading comes a day after the U.S. Department of Labor reported the strongest year-on-year increase in U.S. consumer prices in 40 years at 8.5%. The CPI data showed a decrease of 0.9% in inflation for durable goods, while there was an increase of 0.7% in service inflation, both signs of a normalization of the economy after pandemic supply disruptions.

“The hope is that the highest inflation took place in March,” Catrambone said, but he also pointed to positioning in equities that are “pretty fragile at the moment”, giving uncertainty about high energy and commodity prices and whether the Fed can achieve its desired economic “soft landing” as it tightens financial conditions.

Read: This stock market indicator says investors do not think inflation has peaked: analyst

US Treasury Secretary Janet Yellen said on Wednesday that she was more concerned about the prospect of a recession in Europe, given the effects of the war in Ukraine, but that the Federal Reserve also needed luck and the ability to maintain a strong labor market while bringing inflation down. “It has been done before. It is not an impossible combination, “Yellen said in a speech at the North Atlantic Council.

The UK reported the fastest inflation in 30 years and the Reserve Bank of New Zealand made a larger-than-expected half-percentage point rate hike. The Bank of Canada also raised its benchmark interest rates by half a point on Wednesday.

Meanwhile, the U.S. first-quarter earnings season started as investors digested the results from JPMorgan Chase & Co.
as well as Delta Air Lines Inc.
BlackRock Inc.
and other.

JPMorgan Chase shares fell 3.2% after the bank reported a lower first-quarter profit that missed Wall Street’s estimate and threw some gloom over the financial sector.

“JP Morgan’s Q1 earnings are the rather dull book support for a golden two-year period in the banking sector,” said Octavio Marenzi, CEO of Opimas LLC, a capital market consulting firm, in emailed comments.

“During the pandemic, [return on equity] hovered close to 20 per cent. Investment banking and trading performed fantastically well, while loan losses remained extremely low. Now, with rising interest rates, JP Morgan’s earnings were raised and fell by over 40%. This will be the new normality in the banking sector in the foreseeable future, “he said.

Lori Calvasina, head of US equities strategy at RBC Capital Markets, noted that consensus earnings expectations for the S&P 500 this year have actually risen, to $ 230 in April from $ 224 in January.

“Given the countless headwinds that companies face in the first quarter and the coming year, we believe the reporting season for the first quarter has the potential to become a mess. But we also see the potential for it not to get so bad. as feared, given the likelihood that the buying side’s expectations are much lower than the official sales side forecasts – as long as robust assessments of underlying appetite / demand remain in place, ”she said.

Companies in focus
  • Shares in BlackRock, the world’s largest asset manager, were 0.6% lower after reporting a net income that exceeded expectations.

  • Delta shares rose 5.8% after reporting stronger-than-expected results, lifting other airlines, including American Airlines Group Inc.
    which was an increase of 9.7 per cent. The popular US Global Jets ETF
    rose 4.9 pct.

  • Shares of Bed Bath & Beyond Inc.
    rose 0.8% after the retailer reported a surprising loss in the fourth quarter and missed sales.

How other assets are traded
  • The return on 10-year government bond BX: TMUBMUSD10Y
    decreased 4 basis points to 2.68%. Interest rates and debt prices are moving opposite each other.

  • ICE US Dollar Index DXY,
    a measure of the currency relative to a basket of six major rivals fell 0.4%.

  • Bitcoin BTCUSD
    rose 5% to trade back over $ 41,000.

  • Oil futures extended a recovery to push the US benchmark CL
    up 3.2% to trade near $ 104 a barrel. Gold futures GC00
    rose 0.4% over $ 1,983 per share. ounce, heading for a fifth straight win in a row.

  • Stoxx Europe 600 XX: SXXP
    ended up fraction higher while London’s FTSE 100 UK: UKX
    rose 0.1 pct.

  • Shanghai Composite CN: SHCOMP
    fell 0.8% while the Hang Seng index HK: HSI
    rose 0.3% in Hong Kong and Japan’s Nikkei 225 JP: NIK
    rose 1.9 pct.

-Steve Goldstein contributed with reporting

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