US Stocks Rise as Traders Digest Data, Earnings: Markets Wrap

(Bloomberg) -- US stocks gained as investors were heartened by signs that labor costs are easing, adding to evidence that inflation is cooling. However, traders continued to assess a bevy of corporate earnings reports, which kept them on the edge.

The S&P 500 and the Nasdaq 100 climbed as data on Tuesday showed US employment costs trailing forecasts. Treasuries pared gains. The dollar was little changed. 

Investors are grappling with a flurry of economic data, earnings and rate decisions this week. US consumer confidence fell this month, data from the Conference Board showed, but Americans still remained upbeat about the labor market. 

Hanging over everything is Wednesday’s Federal Reserve decision, with the central bank widely expected to raise rates by a quarter percentage point. While Tuesday’s data from the Labor Department added to evidence that wage growth is slowing, it may still not be enough to sway the Fed. Investors will be watching for the tone officials set for future meetings after Fed Chair Jerome Powell’s consistent efforts to push back against traders anticipating rate cuts later this year.

However, Fed officials are on track to consider pausing rate hikes after their March meeting, if there is enough evidence of inflation continuing to cool, according to a timeline by Governor Christopher Waller. Waller had been an early advocate for front-loading rate hikes last year. 

“The prospect of a stabilization of interest rates at 5% after March is shifting the focus from the rate side to the growth side,” said Willem Sels, chief investment officer at HSBC Private Bank. “Mixed earnings will probably continue to lead to some volatility in coming weeks, so we are neutral on developed-market equities for now.”

Investors are also assessing earnings that are continuing to trickle on Tuesday. Caterpillar Inc., Pfizer Inc. and McDonald’s Corp. declined after earnings misses. General Motors Co. rose after posting upbeat forecasts. Exxon Mobil Corp.’s fourth quarter earnings per share beat estimates and the firm posed full-year profit that was the highest on record. 

But signs of earnings pressures are complicating the picture for investors hopeful that the Fed will ease off on its aggressive rate-hike cycle. Earnings per share estimates for the S&P 500 have fallen since peaking in June 2022, while revenue projections have flatlined, according to data compiled by Bloomberg. Margins are also coming under pressure as slowing inflation erodes pricing power.

However, a string of major companies including Microsoft Corp. and Amazon.com Inc. have announced layoffs recently. Layoffs are the “most likely catalyst” to give Fed the confidence that inflation will get back to 2%, said Thomas Kennedy, chief investment strategist at JPMorgan Global Wealth Management.

Key events this week:

• Eurozone Manufacturing PMI, CPI, unemployment, Wednesday
• US construction spending, ISM Manufacturing, light vehicle sales, Wednesday
• FOMC rate decision, Fed Chair Jerome Powell press conference, Wednesday
• Earnings Wednesday include: Meta Platforms and Peloton Interactive
• Eurozone ECB rate decision, President Christine Lagarde press conference, Thursday
• UK BOE rate decision, Thursday
• US factory orders, initial jobless claims, US durable goods, Thursday
• Earnings Thursday include: Alphabet, Apple, Amazon, Qualcomm and Deutsche Bank and Santander
• Eurozone S&P Global Eurozone Services PMI, PPI, Friday
• US unemployment, nonfarm payrolls, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.4% as of 10:24 a.m. New York time
• The Nasdaq 100 rose 0.6%
• The Dow Jones Industrial Average rose 0.1%
• The Stoxx Europe 600 fell 0.5%
• The MSCI World index fell 0.9%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0845
• The British pound fell 0.5% to $1.2295
• The Japanese yen rose 0.3% to 130.05 per dollar

Cryptocurrencies

• Bitcoin rose 1.7% to $23,136.73
• Ether rose 2% to $1,587.63

Bonds

• The yield on 10-year Treasuries was little changed at 3.54%
• Germany’s 10-year yield was little changed at 2.31%
• Britain’s 10-year yield advanced two basis points to 3.35%

Commodities

• West Texas Intermediate crude rose 0.6% to $78.35 a barrel
• Gold futures were little changed

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