S&P 500 inches higher ahead of inflation data

By Sruthi Shankar and Ankika Biswas

(Reuters) – The benchmark edged higher on Tuesday, with economy-sensitive energy and material stocks leading gains ahead of Wednesday’s inflation data that is likely to determine the U.S. Federal Reserve’s next policy move.

Losses in megacap stocks such as Microsoft Corp (NASDAQ:) and Amazon.com Inc (NASDAQ:) weighed on the tech-heavy Nasdaq as U.S. Treasury yields crept higher, while gains in industrial stocks such as Caterpillar Inc (NYSE:) boosted the Dow.

Hopes that the Fed will soon end its aggressive monetary policy tightening campaign spurred a rebound in the S&P 500 this month after the collapse of two U.S. mid-sized lenders sparked a selloff in March.

A strong labor market report on Friday, however, lifted bets that the U.S. central bank will increase rates by 25 basis points in May, with money market traders pricing in a nearly 70% chance of such a move, according to CME Group’s (NASDAQ:) Fedwatch tool.

This marks a shift in traders’ bets of a pause in the Fed’s policy tightening after recent weak economic data raised the possibility of a U.S. recession.

“People are waiting for the important events – CPI, PPI and banks that are going to report earnings,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab (NYSE:).

“If the Fed does get to a point where it simply holds rates steady, the markets can potentially do well with that. My concern is if they continue to tighten, it’s going to continue to cause stress on some banks.”

Data on Wednesday is expected to show consumer prices grew 5.2% in March after a 6.0% rise in February. However, core prices are seen rising 5.6%, at a slightly faster pace compared with a 5.5% rise in February.

Investors will also scrutinize earnings reports from the big U.S. banks Citigroup Inc (NYSE:), JPMorgan Chase & Co (NYSE:) and Wells Fargo (NYSE:) & Co on Friday for clues on the overall health of the banking sector.

Analysts expect first-quarter profits at S&P 500 companies to fall 5.2% year-on-year, the worst contraction since the third quarter of 2020 and a stark reversal from the 1.4% annual growth forecast at the beginning of the year, according to Refinitiv IBES data.

At 12:03 p.m. ET, the was up 136.25 points, or 0.41%, at 33,722.77, the S&P 500 was up 5.13 points, or 0.12%, at 4,114.24, and the was down 46.54 points, or 0.39%, at 12,037.82.

Remarks later on Tuesday from voting members of the Fed’s rate-setting committee will be parsed for more clues on the central bank’s policy moves.

Seven of the 11 major S&P sectors rose, with gains in material and energy shares offsetting losses in technology stocks.

Shares of crypto-related companies such as Coinbase (NASDAQ:) Global Inc, Riot Platforms Inc and Marathon Digital Holdings Inc climbed between 8% and 12% as bitcoin breached the key $30,000 level for the first time in 10 months.

CarMax Inc (NYSE:) rallied 11.4% as the used-car retailer reported a quarterly profit that beat estimates.

Moderna (NASDAQ:) Inc fell 4.3% as the company said its closely watched flu vaccine did not meet the criteria for early success in a late-stage trial.

Advancing issues outnumbered decliners for a 3.58-to-1 ratio on the NYSE and a 1.56-to-1 ratio on the Nasdaq.

The S&P index recorded six new 52-week highs and no new lows, while the Nasdaq recorded 43 new highs and 72 new lows.