(April 14): US stocks extended their rally on Tuesday as cooler-than-expected wholesale price increases and retreating oil prices eased concerns about an inflation-shock while reports of another potential round of peace talks stoked optimism the US-Iran war may be drawing closer to an end.
The S&P 500 Index climbed 0.8% at 11.04am in New York, pushing it back towards January’s record high, after erasing the last of its post-war losses on Monday. Airlines were among the top-performing stocks with United Airlines Holdings Inc gaining after pitching rival American Airlines Group Inc on a potential combination.
The tech-heavy Nasdaq 100 Index rose 1%, while the Dow Jones Industrial Average climbed 0.6%. The Cboe Volatility Index, which jumped above 30 last month, continued to decline to just over 18 on Tuesday.
The producer price data is raising some investor hopes the Federal Reserve can still cut interest rates later this year despite the sharp jump in energy costs triggered by the war. Producer prices rose 0.5% in March, below expectations of a 0.7% gain. The increases were also lower when food and energy costs are excluded.
“The underlying trends heading into the Iran war make it much more likely that disinflation can continue and we should be able to price in rate cuts later this year,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management, adding that inflation related to higher oil prices “could become a problem”.
Stocks have risen even as the impasse at the Strait of Hormuz has caused oil prices to rise in recent weeks, Barclays equity derivatives strategists led by Stefano Pascale wrote in a Tuesday note. “This is a flimsy equilibrium as stagflationary pressure keeps on building,” he said.
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Crude oil prices slipped on Tuesday on signs the US and Iran are considering more talks. West Texas Intermediate traded around US$93 a barrel.
“For the next 12 months, I still prefer to be in the US,” Alicia Levine, head of investment strategy and equities at BNY Wealth, said in a Bloomberg TV interview on Tuesday morning. She likes industrial stocks and has not changed her allocations even as the war in Iran has upended markets since the end of February.
“We came into this with a pretty strong economy, a good setup with fiscal support,” she said.
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Citigroup Inc strategists including Beata Manthey have turned bullish on US stocks, upgrading them to overweight from neutral on a “quality/defensive tilt” in their global allocation. The move follows similar calls from BlackRock Inc and Morgan Stanley on the US market for its relative resilience.
But earnings season for large US banks is off to a mixed start. Wells Fargo & Co was the worst-performing stock in the S&P 500 on Tuesday after the lender missed analyst net interest income estimates for the first quarter.
JPMorgan Chase & Co shares also slipped after it lowered full-year net interest income guidance. The move comes despite JPMorgan reporting record quarterly trading revenue.
Citigroup Inc, meanwhile, gained after posting its highest quarterly revenue in a decade.
Separately, the National Federation of Independent Business optimism index fell for a third month to its lowest level in almost a year.
Traders looking for additional clues from the Fed on monetary policy heard from a few officials. On Monday, Federal Reserve governor Stephen Miran said the Iran’s war oil shock hasn’t yet impacted longer-run inflation expectations, while Chicago Fed president Austan Goolsbee said additional rate cuts this year are unlikely and he’s concerned about how long the Iran war will last.
Kevin Warsh, Trump’s pick to succeed Jerome Powell, is now expected to have his hearing to be Fed chair next week.
In single stock news, Globalstar Inc shares jumped after Amazon.com Inc agreed to buy the satellite operator for US$11.6 billion.
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