U.S. stocks rose as the March consumer prices report showed inflation excluding volatile food and energy costs was slightly less than expected. A drop in rates helped boost stocks.
The Dow Jones Industrial Average gained 112 points or 0.3% following the report. S&P 500 ticked upward by 0.6%. The Nasdaq Composite climbed 1.2%, after falling more than 2% in the prior session as tech stocks that have been hit hard this year on higher rate fears rebounded.
Consumer prices for March increased 1.2% month-to-month and 8.5% annually, the Labor Department said on Tuesday. But traders were focusing on the core reading, which excludes food and energy prices. Core CPI in March increased 0.3%, below the consensus economist estimate from Dow Jones of 0.5%. Core prices on an annual basis were up 6.5%.
The 10-year Treasury yield retreated from a three-year high following the report as traders were betting the core reading could mean inflation is showing signs of peaking.
“The big news in the March report was that core price pressures finally appear to be moderating,” wrote Andrew Hunter, senior U.S. economist at Capital Economics. The economist believes the increase in March will “mark the peak” for inflation.
A relief in the core reading helped tech stocks post gains after the consumer prices report. Investors dropped growth and tech names in April as the Nasdaq fell by more than 5% so far this month. The tech-heavy index gained 3.4% in March after falling into correction territory earlier in the year.
Tech stocks rallied in premarket trading following the consumer prices report. Microsoft jumped 1.5%. Chip stock Nvidia popped 3.7%. Tesla rallied 2.9%.
The recent spike in U.S. inflation has helped increase expectations of tighter monetary policy from the Federal Reserve. The Fed raised rates at its March meeting, and it’s expected to hike more throughout the year.
“The news is positive, and people will be very happy to see the auto inflation bubble start to dissipate, but a 6.5% core inflation number is very hot, and the Fed is still going to be aggressive this year,” said Adam Crisafulli, founder of Vital Knowledge. “Perhaps if energy prices die down and other categories moderate for months the Fed policy guidance will begin to ease, but for now its status quo on tightening.”
The 10-year Treasury yield fell more than 6 basis points to 2.717% following the CPI reporter after earlier touching 2.82% a level not seen in more than three years. (1 basis point equals 0.01%).
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