MW Dow advances as traders eye looming inflation data and earnings
By Isabel Wang and Jamie Chisholm
U.S. stock indexes traded slightly higher on Tuesday as traders cautiously looked ahead to March's inflation data that could determine the Federal Reserve's next interest-rate decision, as well as the kickoff to the corporate earnings reporting season, with the banking sector in the vanguard.
How are stock indexes trading
On Monday, the Dow Jones Industrial Average rose 101 points, or 0.3%, to 33,587, the S&P 500 increased 4 points, or 0.1%, to 4,109, and the Nasdaq Composite dropped 4 points, or 0.03%, to 12,084.
What's driving markets
Wall Street's main indexes advanced in midday trade on Tuesday after being muted at the open, as investors awaited the release of March's consumer price index and the start of the first-quarter earnings season, with the banking sector slated to report numbers later this week.
The S&P 500 index sits less than 0.5% off its best level since mid-February as investors have become more relaxed about prospects for the U.S. economy and more accepting of the path of Federal Reserve policy.
The March employment report released last Friday showed a steady pace of job creation but with no great sign of accelerating wage inflation, news that helped calm fears of a sharp economic slowdown and faster Fed interest rate hikes.
See:Why March's CPI report could upset the stock market, seal the deal on the next rate hike
But now attention turns to the U.S. CPI report due Wednesday, which is seen as one of the last key data points before the Federal Reserve's next interest-rate move.
The March CPI reading from the Bureau of Labor Statistics, which tracks changes in the prices paid by consumers for goods and services, is expected to show a 5.2% rise from a year earlier, slowing from a 6% year-over-year rise in the previous month, according to a survey of economists by Dow Jones.
Core CPI, which strips out volatile food and fuel costs, is expected to rise 0.4% from a month ago, or 5.6% year over year. The increase in the core rate over the 12-month period dipped to 5.5% in February.
Meanwhile, data from China on Tuesday showing consumer inflation dipped to its lowest level in more than a year in March, is also helping ease fears about global price pressures.
Seema Shah, chief global strategist at Principal Asset Management, expects the decline in inflation in 2023 will likely be "incomplete with inflation remaining above central bank targets," complicating its policy decisions.
"Global inflation is moderating, but so far this deceleration has been largely driven by last year's energy price spike unwind. Core inflation remains uncomfortably high and, in some economies, continues to rise," Shah said in emailed comments on Tuesday.
"Central banks have made less progress towards disinflation than they had hoped. Inflation is likely to remain sticky and will still sit above central bank targets at year-end."
See:High inflation and interest rates to hobble U.S. and global economies for several years, IMF says
The U.S. and global economies are likely to struggle to grow over the next few years as countries fight to reduce high inflation and cope with rising interest rates, the International Monetary Fund said Tuesday.
Meanwhile, the IMF said recent stress in the banking sector could reduce the ability of U.S. banks to lend over the next year, and materially lower U.S. economic growth.
The IMF estimated said that lending capacity in the U.S. could fall by almost 1% in the coming year. That would reduce U.S. real gross domestic product by 44 basis points over that time frame, all else being equal, the IMF said.
See: Why a long, shallow recession is more likely than 'deep and long credit crunch contraction,' says Mizuho
Then, on Friday, the first-quarter corporate earnings season kicks into gear with the financial sector in the vanguard.
"The banks will be an early test of investors' mettle on any number of fronts, not least of which will be the early fallout from the recent banking turmoil, as JP Morgan Chase, Wells Fargo and Citigroup open the season," said Richard Hunter, head of markets at Interactive Investor.
"In particular, loan growth will be scrutinized and could prove to be tepid in view of tightening lending conditions, while there will also be a close eye on any increase in souring loans, given the slowing economy. In turn, this could lead banks to increase provisions for bad debts once more, with the additional pressures of a deal-making drought and trading volatility also potentially weighing on earnings," Hunter added.
Bulls will be hoping a well-received earnings season can help push the S&P 500 index through the top of the 3,800 to 4,200 range in which it has fluctuated for nearly six months.
"The recent stalling out in SPX doesn't appear too serious and prices remain within striking distance of a possible breakout above 4200," noted Mark Newton, head of technical strategy at Fundstrat.
"While a decline lower under 4039 might suggest some minor pullback is getting underway, it's still difficult to make a strong bearish technical case. Trends from mid-March remain bullish while momentum is positively sloped while not overbought," Newton added.
A trio of Fed officials are due to speak on Tuesday: Chicago Fed President Goolsbee at 1:30 p.m.; Philadelphia Fed President Harker at 6:30 p.m.; and Minneapolis Fed President Kashkari at 7:30 p.m. All times Eastern.
-Isabel Wang
Companies in focus
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 11, 2023 11:35 ET (15:35 GMT)
Copyright (c) 2023 Dow Jones & Company, Inc.
Comments