Stocks faltered as key inflation measures cool

Fresh geopolitical tensions halted a major stock market rally on Wall Street on Tuesday as investors weighed reports that Russian missiles had entered Poland.

The S&P 500 (^GSPC) trimmed early morning gains, slightly higher by 0.2% during midday trading, while the Dow Jones Industrial Average (^ DJI) down 0.2%. The technology-intensive Nasdaq composite (^IXIC) also lost some early gains but remained up 0.7% in the afternoon.

Polish Prime Minister Mateusz Morawieck called a meeting on security. According to the Associated Pressa senior US intelligence official said Russian missiles entered Poland, killing two people.

The stock market deceleration came after Wall Street rallied on fresh signs of optimism that inflation could cool. October’s producer price index (PPI) fell to 8% a year from 8.5% in September, after economists polled by Bloomberg had forecast 8.3%.

The annual core PPI also surprised at 6.7% year-over-year, versus a consensus estimate of 7.2%. The PPI report comes next other key data on inflation Last Thursday, consumer prices rose 0.4% in October and core prices rose 0.3%.

“The Core PPI and the deflator core PCE are following very similar paths, although the surge in rents this year has driven an unusually wide wedge between them,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a note following publication of the PPI. “But the pace of rent increases has peaked, and our chart suggests that the sharp decline we expect to see in core PPI inflation will cause the core PCE measure to fall faster than markets and the Fed don’t expect it.”

Yields on the benchmark 10-year Treasury rose on Tuesday to around 3.8%, while the dollar index, which measures the currency against six peers including the yen and euro, gained 107 $.09.

The early rise resumed a rally after stocks finished lower On Monday, investors digested new comments from Federal Reserve officials on the outlook for interest rate hikes. Fed Vice Chair Lael Brainard said Monday that she thinks it will be “appropriate soon to move to a slower rate of increase.”

Some strategists argued that Monday’s lows weren’t due to Brainard’s comment, but rather a signal of what might be to come.

“The latest in a growing wave of evidence that the FOMC will move 50 basis points in December instead of the 75 basis point pace it has been at since June,” Bespoke Investments strategists wrote in a note to clients. .

Brainard’s comments came after Fed Governor Christopher Waller reiterated Fed Chairman Jerome Powell’s recent comments that policymakers have “some way to go” before the central bank stops. to raise rates.

“The inflation conversation so far fits the soft landing narrative,” said Thomas Kennedy, chief investment strategist at JP Morgan Global Wealth Management. Yahoo Finance Live tuesday.

But “inflation is only sequentially trending lower than expected. And the real question will be what level of inflation the Fed is actually fighting,” Kennedy added.

Stock sentiment and global growth among fund managers interviewed by Bank of America remained “ultra-bearish” with a macro outlook of “92% predicting ‘stagflation’ in 2023,” the strategists led by Michael Hartnett wrote in a note on Tuesday.

US President Joe Biden’s meeting with Chinese President Xi Jinping, the first between the leaders of the world’s two largest economies since Biden took office, was also on the investors’ agenda.

“As leaders of our two nations, we share a responsibility, in my view, to show that China and the United States can manage our differences, prevent competition from becoming conflict, and find ways to work together on pressing global issues that require our mutual cooperation,” Biden said at the opening of the meeting.

U.S. President Joe Biden shakes hands with Chinese President Xi Jinping as they meet on the sidelines of the G20 leaders summit in Bali, Indonesia November 14, 2022. REUTERS/Kevin Lamarque

In company news, Home Depot (HD) kicked off a major retail earnings week by reporting that sales rose 5.6% in the third quarter, beating analysts’ expectations as higher prices offset a slowdown in transactions. Walmart (WMT) also beat Wall Street expectations for the quarter and raised its outlook as the retailer “significantly improved” its excess inventory. The discounter’s inventory rose 13% year-over-year in the third quarter, compared with 25% in the prior quarter.

With inflation still high, Walmart’s results also showed that those who had bigger wallets are also in a hurry.

“We continued to gain grocery market share among households across all income demographics, with nearly three-quarters of the share gain coming from those exceeding $100,000 in annual income,” John David Rainey said. , executive vice president and chief financial officer of Walmart. the results call on Tuesday.

Target (TGT), Lowe’s (DOWN), and TJMaxx (TJX) are also expected to release their results on Wednesday.

Elsewhere, cryptocurrency prices stabilized after last week filing for bankruptcy by FTX. bitcoin (BTC) was trading at $16,969.78 as of midday Tuesday, while Ethereum (ETH), the second most popular cryptocurrency, traded at $1,264.22.

Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv

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