Peak inflation bets, as well as surprisingly solid retail earnings, have U.S. stocks back in rally-mode Tuesday.
U.S. equity futures moved firmly higher Tuesday, while the dollar slipped against its global peers and Treasury yields retreated, as investors looked to consolidate last week’s rally ahead following a better-than-expected reading of factory gate inflation and solid earnings from the nation’s biggest retailers.
The Commerce Department said producer price inflation slowed to 8% last month, well south of the Street consensus forecast and more than three percentage points lower than the multi-decade highs reached in March of this year.
The PPI data, which followed a muted reading of consumer price inflation last week, may trigger further discussions as to whether inflation has peaked in the world’s biggest economy.
The bullish sentiment was supported by stronger-than-expected third quarter earnings from Walmart (WMT) – Get Free Report, which also trimmed its forecast for an expected profit decline over the final three months of the year, as well as Home Depot (HD) – Get Free Report, which was able to increase sales and profits despite the ongoing downturn in the housing market.
The Tuesday data followed a pullback in stocks last night amid comments from Federal Reserve Vice Chair Lael Brainard that suggested a near-term slowing in the central bank’s rate path while still cautioning that inflation rates remain far too elevated.
Her remarks, building on a hawkish set of comments from Fed Governor Christopher Waller in Australia, suggest markets remain acutely sensitive to any change in tact from policymakers in Washington heading into the Fed’s December meeting.
At present, the CME Group’s FedWatch suggests an 80.6% chance of a 50 basis point rate hike next month, with the odds of another 75 basis point increase – which would be the fifth in succession — pegged at 19.4%.
The U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 0.75% lower at 105.847 following the PPI data while benchmark 10-year Treasury note yields fell 9 basis points to 3.79%, in early New York trading.
This week’s focus on retail sales and consumer strength, as evidenced by October quarter updates from Home Depot and Walmart today, Target (TGT) – Get Free Report and Lowe’s (LOW) – Get Free Report tomorrow and retail sales from the Commerce Department on Thursday, will likely add another layer of complexity onto stocks before the end of the week.
Investors will also focus on the final throes of the third quarter earnings season this week, with updates from 15 S&P 500 companies between now and Friday. With around 460 reporting so far, collective profits are expected to rise 4.1% from last year to $462.8 billion, thanks in large part to forecast-busting gains from the energy sector.
Looking into the final months of the year, however, earnings are likely to fall 0.1% from their 2021 levels to a share-weighted $456.7 billion, according to data from Refinitiv.
Heading into the start of the trading day on Wall Street, futures tied to the S&P 500 are priced for a 75 point opening bell gain while those linked to the Dow Jones Industrial Average are indicating a 380 point advance. Futures tied to the tech-focused Nasdaq are looking at a 345 point gain.
In overseas markets, Asia stocks were firmly higher, rising on the back of a relatively promising meeting on the G20 sidelines between President Joe Biden and China President Xi Jinping, as well as hopes that officials in Beijing would further loosen Covid restrictions in the world’s second largest economy following disappointing October data on industrial output and retail sales.
The region-wide MSCI-ex Japan index was marked 2.36% higher heading into the close of trading, while in Europe the Stoxx 600 was up 0.75% in mid-day trading in Frankfurt.