U.S. stocks rallied on Tuesday and the S&P 500 ended a three-day skid as another drop in oil prices and a softer-than-expected reading on producer prices helped ease inflation fears among investors, with the focus turning to the Federal Reserve’s upcoming policy announcement. The TSX ended nearly unchanged.
Brent crude settled below US$100 a barrel after rocketing higher to more than $139 last week, providing some temporary relief for equity investors that have seen stocks come under pressure this year from surging inflation concerns, uncertainty over the Fed’s policy path to tame rising prices and more recently, escalating conflict in Ukraine.
U.S. producer prices increased solidly in February as the cost of goods like gasoline surged, and further gains are in the pipeline following Russia’s invasion of Ukraine, which has made crude oil and other commodities more expensive.
Still, the data for the 12 months through February matched expectations predicting a 10% increase in producer prices, while the producer price index for final demand on a monthly basis increased 0.8%, just shy of the 0.9% estimate and lower than the 1.2% increase registered in January.
The market is now fully pricing in a rate hike of at least 25 basis points when the central bank makes its policy statement on Wednesday. Investors will also be closely watching the Fed’s projections for the path of rate hikes this year and in coming years to rein in inflation.
Fed Chairman Jerome Powell has recently floated multiple rate hikes this year as the Fed seeks to curb inflation.
“The fact is (PPI) was weaker than the expectation so therefore the idea that Jay Powell is right going 25 basis points seems to be the way the market feels today, that could change tomorrow,” said Ken Polcari, managing partner at Kace Capital Advisors in Boca Raton, Florida.
“The market is in a very oversold position, there are still going to be bumpy roads ahead but today could just be one of those snap-back rallies like we saw last week.”
The Dow Jones Industrial Average rose 599.1 points, or 1.82%, to 33,544.34, the S&P 500 gained 89.34 points, or 2.14%, to 4,262.45 and the Nasdaq Composite added 367.40 points, or 2.92%, to 12,948.62.
The S&P 500 slumped about 2.4% in the prior three sessions and recently joined the Dow, Nasdaq and Russell 2000 in forming a “death cross” technical pattern, when a short-term moving average crosses below a longer-term moving average, which some investors believe signals more near-term weakness is likely.
Ten of the 11 major S&P sectors advanced, with technology and consumer discretionary stocks leading the way while energy, the sole positive sector on the year, slumped nearly 4% on the day along with crude prices.
Megacap growth stocks gained with Microsoft Corp up 3.87% and Apple up 2.97%, providing the biggest boosts to the S&P 500 and the Nasdaq.
Meanwhile, investors also closely tracked a steep jump in daily COVID-19 infections in China for the possibility of denting global economic growth, and progress in Ukraine-Russia talks to end their weeks-long conflict.
In the latest hint at compromise, Ukrainian President Volodymyr Zelenskiy said Kyiv was prepared to accept security guarantees that stop short of its long-term objective of the NATO alliance membership, which Moscow opposes.
Delta Air Lines Inc gained 8.70% and United Airlines jumped 9.19% after the U.S. carriers raised their current-quarter revenue forecasts, even as they trimmed capacity. The Arca Airline index climbed 5.57%.
Volume on U.S. exchanges was 13.46 billion shares, compared with the 13.78 billion average for the full session over the last 20 trading days. Advancing issues outnumbered declining ones on the NYSE by a 2.07-to-1 ratio; on Nasdaq, a 1.72-to-1 ratio favored advancers. The S&P 500 posted 12 new 52-week highs and 8 new lows; the Nasdaq Composite recorded 21 new highs and 386 new lows.
The Toronto Stock Exchange’s S&P/TSX composite index ended up 7.06 points, or 0.03%, at 21,187.84, after touching its lowest level since March 1 earlier in the day at 20,971.11.
Among the sectors that have been most threatened by higher interest rates is technology. The Toronto market’s tech sector ended 2.2% higher, led by a 7.6% advance for e-commerce company Shopify Inc.
The energy group, in contrast, fell for a second day, giving back some recent gains. It ended 1.8% lower as oil tumbled to its lowest level in almost three weeks on easing supply disruption fears and concern that surging COVID-19 cases in China would slow demand.
Brent futures plummeted $6.99, or 6.5%, to settle at $99.91 a barrel, while U.S. West Texas Intermediate (WTI) crude fell $6.57, or 6.4%, to settle at $96.44 a barrel. Both contracts settled below $100 per barrel for the first time since late February.
Brent fell as low as $97.44 during Tuesday’s session and WTI hit $93.53, their lowest since Feb. 25.
The steep decline on Tuesday came as Russia said that it has received written guarantees it can carry out its work as a party to the Iran nuclear deal, suggesting that Moscow would allow a revival of the tattered 2015 pact to go forward.
The talks to revive the nuclear accord, which would lead to sanctions on Iran’s oil sector being lifted and allow Tehran to resume crude exports, had recently stalled because of Russian demands.
In the bond market, benchmark U.S. 10-year note yields were last 2.158%, after earlier rising to 2.169%, the highest since June 2019.
Reuters, Globe staff
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