Silver lining in inflation report helps send stocks higher

Stocks are bouncing back in early Tuesday trading on Wall Street, and the areas of the market most beaten down in recent days are leading the way.

The S&P; 500 was 1% higher following back-to-back losses driven by worries about the economic collateral damage as the Federal Reserve tackles high inflation more aggressively. A report on Tuesday morning showed inflation last month was again at its highest level in 40 years, driven in particular by soaring gasoline prices, but the reading was relatively close to economists’ expectations.

Another faint silver lining was that inflation unexpectedly slowed in March on a month-over-month basis, after ignoring the costs of food and fuel. While it’s laughable to ask households to forget soaring prices at the gasoline pump and the grocery store, the Federal Reserve pays more attention to what’s called “core inflation” while setting policy because it’s less volatile. And month-over-month core inflation moderated to its slowest level since September.

“Hopefully this is as bad as it gets,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.

“The risk is that a red hot labor market grows cold under the force of those higher food, fuel, and financing costs. This is a time when economic resilience will be tested.”

The Dow Jones Industrial Average was up 293 points, or 0.9%, at 34,601, as of 9:48 a.m. Eastern time. A rebound for technology stocks drove the Nasdaq composite 1.5% higher.

Stocks in recent days have been trading in the opposite direction of Treasury yields, which have climbed to their highest levels since well before the pandemic. Yields jumped as investors brace for the Federal Reserve to hike short-term rates at a faster pace than typical and to aggressively pare its trove of bonds, whose buildup helped keep longer-term rates low.

But Treasury yields pulled back on Tuesday immediately following the inflation report. The 10-year yield sank to 2.71% from 2.77% late Monday. It was as high as 2.83% overnight, before the inflation report’s release. The 10-year yield nevertheless remains well above the 1.51% level where it began the year.

A measure of nervousness among stock investors also fell immediately after the inflation report.

Stocks elsewhere around the world were lower or mixed, as unease continues to hang over markets about the war in Ukraine, Chinese efforts to contain COVID outbreaks and where inflation and interest rates are heading.

The price of U.S. crude oil climbed 5.2% to $99.23, keeping the pressure on high inflation. Brent crude, the international standard, rose 5.6% to $103.99.

Higher interest rates from the Federal Reserve would slow the economy, which would hopefully knock down high inflation. Consumer prices were 8.5% higher in March than a year earlier, accelerating from February’s 7.9% inflation rate and the highest since 1981. To knock it down, the Fed revealed in the minutes from its latest meeting that it’s prepared to hike short-term rates by half a percentage point, double the usual amount, at some upcoming meetings, something it hasn’t done since 2000.

The worry is the Federal Reserve may have to be so aggressive to hike interest rates so aggressively that it forces the economy into a recession.

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AP Business Writer Joe McDonald contributed.

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