Stocks reeled as key inflation measures cooled

Fresh geopolitical tensions halted a significant stock rally on Wall Street on Tuesday as investors weighed reports that Russian missiles have swept through Poland.

The S&P 500 (^GSPC) trimmed early morning gains, rising slightly 0.2% during midday trading, while the Dow Jones Industrial Average (^DJI) fell 0.2%. The tech-heavy Nasdaq Composite (^IXIC) also lost some early gains, but was up 0.7% in the afternoon.

Polish Prime Minister Mateusz Morawieck has called a meeting on security. According to the Associated Press, a 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 about a possible cooling in inflation. October’s producer price index (PPI) fell 8% on the year, down from 8.5% in September, after economists polled by Bloomberg had forecast 8.3%.

Annual core PPI also surprised at 6.7% year over year, versus a consensus estimate of 7.2%. The PPI report comes after other key inflation data came in lower than expected last Thursday, with consumer prices rising 0.4% in October and core prices rising 0.3%.

“Core PPI and core PCE deflator follow very similar paths, even though this year’s rent increase has driven an unusually large wedge between them,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a note. after the release of the PPI. “But the pace of rent hikes has peaked and our chart suggests that the sharp decline we expect to see in core PPI inflation will drag down the core PCE measure faster than markets and the Fed expect “.

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

The initial rally rallied again after shares closed lower on Monday as investors digested fresh comments from Federal Reserve officials on the prospects for interest rate hikes. Fed Vice Chair Lael Brainard said on Monday that he believed it would be “appropriate soon to move to a slower pace of hikes.”

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

“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 Chair Jerome Powell’s recent comments that policymakers have “some ways to go” before the central bank stops raising rates.

“The inflation conversation so far has accommodated the soft landing narrative,” Thomas Kennedy, chief investment strategist at JP Morgan Global Wealth Management, told Yahoo Finance Live on Tuesday.

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

Sentiment on stocks and global growth among fund managers surveyed by Bank of America remained “super-bearish” with a macro outlook of “92% expecting ‘stagflation’ in 2023,” wrote strategists led by Michael Hartnett in a note Tuesday.

Also on the plate of investors is the meeting of US President Joe Biden with Chinese President Xi Jinping, the first of the leaders of the two major world economies since Biden took office.

“As leaders of our two nations, we share the responsibility, in my view, to demonstrate that China and the United States can manage our differences, prevent competition from becoming anything like conflict, and find ways to work together.” on urgent 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 business news, Home Depot (HD) kicked off a major earnings week for retailers by reporting sales that rose 5.6% in the third quarter, beating analyst expectations as higher prices offset a slowdown in transactions. Walmart (WMT) also beat Wall Street’s expectations for the quarter and lifted its outlook, as the retailer “significantly improved” its excess inventory. Inventories at the discounter increased 13% year over year in the third quarter, down from 25% in the prior quarter.

With inflation still high, Walmart’s results also showed that those with bigger wallets are also being squeezed.

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

Target (TGT), Lowe’s (LOW) and TJMaxx (TJX) will also release earnings on Wednesday.

Elsewhere, cryptocurrency prices have stabilized following last week’s bankruptcy filing by FTX. Bitcoin (BTC) traded at $16,969.78 at noon on Tuesday, while Ethereum (ETH), the second most popular cryptocurrency, climbed to $1,264.22.

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

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