US stocks advance as inflation data raises hopes for smaller Fed rate hikes

US stocks rose modestly and Treasury yields fell on Tuesday, as fresh signs that inflation was cooling last month fueled hopes that the Federal Reserve will slow the pace of interest rate increases.

Wall Street’s benchmark S&P 500 rose 0.8 percent by midday in New York, paring previous gains, while the heavy Nasdaq Composite rose 1.5 percent. The S&P 500 has gained nearly 14 percent from its intraday low in the second week of October.

Tuesday’s gains came on the heels of a report showing that US producer prices rose 0.2 percent in October compared to September, compared to expectations in a Bloomberg poll of 0.4 percent. The annual rate of wholesale inflation was 8 percent, down from 8.5 percent in September.

“This data is further confirmation of the current peak in inflation, evidence we have been seeing for months,” said Peter Boockvar, chief investment officer at Blaakley Financial Group.

The slowdown in factory gate prices comes after a last week’s report US consumer inflation also showed easing, raising hopes among some investors that the Federal Reserve will slow its tightening of monetary policy, lifting the dollar and weighing on stocks.

US government bond markets rebounded – the yield on two-year US Treasury notes fell by 0.03 percentage point to 4.38 percent. The yield on the US benchmark 10-year note fell 0.05 percentage point to 3.82 percent. Yields go down when prices go up.

Some analysts believe that investors have become unduly optimistic about the recent gains in Wall Street stocks.

Analysts at Goldman Sachs, who believe the recent rally in bonds and risky assets has been “likely overdone,” said:

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The bank added: “A reset of inflation that is greater than expected may support a slowdown in the pace of the rise, but the risks of extending the rising cycle still exist.”

Lyle Brainard, Vice Chairman of the Federal Reserve, He said on Monday That the pace of interest rate increases has slowed does not mean that the central bank has been discouraging its efforts to tackle historically high inflation.

“We’ve done a lot, but we have more work to do in terms of raising interest rates and maintaining restraint to bring inflation down to 2 percent over time,” she said, adding that while better-than-expected inflation data for October was “reassuring It was only “preliminary”.

The debate over whether the recent rally in stocks marks the beginning of a true bullish wave or just a bear market rally is largely pointless in the absence of fresh economic news, said Mike Zygmunt, head of trading and research at Harvest Volatility Management.

“Let’s just accept that investors are confused, but they’re also not scared,” Zygmunt added. They just got a huge dose of relief [from the latest CPI data] They are now adjusting to the new environment.”

Meanwhile, the latest Bank of America survey of global fund managers revealed that 92 percent of those surveyed expected a bout of stagflation — low growth, high inflation — in 2023.

Asian markets also made strong gains after Xi Jinping and Joe Biden signaled the desire to do so Improve relations between the United States and China At a meeting on Monday ahead of the G20 summit in Indonesia, Beijing moved to ease some restrictions on the pandemic.

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Hong Kong’s Hang Seng Index rose 4.1 percent and has risen by a quarter since its lowest level in late October. China’s CSI 300 rose 1.9 percent, Japan’s Topix rose 0.4 percent, and South Korea’s Kospi index rose 0.2 percent.

The Stoxx Europe 600 regional index rose 0.4 percent, while the FTSE index in London fell 0.2 percent.

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