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Stocks bounce after rough CPI day as yields fall

By Rita Nazareth Bloomberg News

Wall Street traders reeling from an unexpected pickup in U.S. inflation sent stocks and bonds higher on Wednesday.

Equities rebounded after a slide in the previous session that was triggered by a reset in Federal Reserve rate-cut expectations – and amplified by moves in derivatives markets. The market’s favorite volatility gauge – the VIX – tumbled after closing at the highest since November. Treasuries also gained, with the move led by shorter maturities.

“Investors should expect continued volatility as the market sorts out the continued uncertainty over how the Federal Reserve will respond to the ongoing inflation situation,” said Jeremy Straub at Coastal Wealth. “The stock market never moves higher without fits and starts along the way.”

Fed Bank of Chicago President Austan Goolsbee said slightly higher inflation data for a few months would be consistent with a path back to the central bank’s 2% goal. Traders are only fully pricing in three Fed rate cuts for this year, with around a 70% chance of a fourth reduction. That lines up with the U.S. central bank’s own forecast for three easing moves.

The S&P 500 got close to reclaiming its 5,000 mark, while the tech-heavy Nasdaq 100 added almost 1%. Nvidia Corp. led a rally in chipmakers, while Uber Technologies Inc. jumped 12% on plans to buy back as much as $7 billion in shares. Treasury 10-year yields fell three basis points to 4.28%. The dollar fluctuated. Bitcoin climbed past $51,000.

Matt Maley at Miller Tabak + Co. says the stock-market bounce is giving investors a lot of relief from Tuesday’s “scare.” However, he points out that Treasury yields remain at or very-near their recent highs.

“Therefore, if those yields do not roll over very quickly, it’s something that could finally create somewhat impactful headwinds for the stock market,” Maley noted.

A Bloomberg index of global debt has dropped 3.5% this year, wiping out all of its gains since Dec. 12, the day before the Fed announcement that month. Slower-than-forecast UK inflation numbers for January offered some relief to Treasuries on Wednesday, lowering the US 10-year yield after Tuesday’s 14-basis-point surge.

To Chris Senyek at Wolfe Research, the market remains a “show me” story.

“For the overall market to experience an official correction, we believe investors will need to see additional evidence that the Fed won’t cut in-line with expectations and/or the growth outlook is decelerating fast enough to spark recession fears,” he noted.

Corporate highlights

  • Lyft Inc. issued a massive correction to its outlook for earnings margin in 2024, saying its margin is expected to expand by 50 basis points – not the 500 basis points written into an earnings presentation released earlier on Tuesday.
  • Airbnb Inc. ended 2023 stronger than analysts’ had expected but suggested that demand in the current quarter wouldn’t be as robust as the last.
  • Robinhood Markets Inc. reported revenue that topped estimates and executives said deposit growth is outpacing that of last year.
  • Airbnb Inc. ended 2023 stronger than analysts’ had expected but suggested that demand in the current quarter wouldn’t be as robust as the last.
  • Continental AG is cutting around 7,150 positions in its struggling auto unit to make the business more competitive for the complex shift to electric vehicles and digital offerings.
  • Thyssenkrupp AG cut its sales outlook following a decline in orders, as well as booking another writedown on its struggling steel business.