Stocks Finish Volatile Session Higher

U.S. stock indexes climbed in a volatile session Tuesday as investors continued to assess the outlook for inflation and economic growth.

The S&P 500 rose 39.25 points, or 1%, to 4160.68, driven by gains in 10 of the index’s 11 sectors. The Nasdaq Composite climbed 113.86 points, or 0.9%, to 12175.23. The Dow Jones Industrial Average increased 264.36 points, or 0.8%, to 33180.14. All three indexes had opened modestly lower after a profit warning from Target cast a pall over the retail sector.

Stocks have swung in recent days, buffeted by shifts in views about the strength of the economy and the likely path for central banks and interest rates. A big concern is that central banks could act too aggressively as they combat inflation and trigger a slowdown in economic growth or even a recession.  

“We’re still in this constant push and pull about where inflation is going to be, where growth is going to be, and whether we’re going to be in a recession or not,” said Fahad Kamal, chief investment officer at Kleinwort Hambros.

Target shares dropped $3.69, or 2.3%, to $155.98 after the retailer issued a warning that its profit would decline because it needs to cancel orders or offer discounts to clear out unwanted goods, a potential sign of lower consumer spending. Shares of other big retailers followed, with Walmart declining $1.50, or 1.2%, to $123.37.

A significant increase in retail inventories and diminishing demand could cause prices to moderate across most consumer goods in the second half of the year, according to Peter Essele, head of portfolio management at Commonwealth Financial Network.

“That would be a good thing for inflation overall and would help buoy markets higher as inflation continues to decline,” Mr. Essele said.

The trade gap in the U.S. for April narrowed to $87.1 billion, shrinking more than economists had forecast, after reaching a record deficit the prior month. A key release this week will be the consumer price index on Friday, which will be closely watched for signals on whether inflation is weakening or not.  

Treasury Secretary Janet Yellen said in a Tuesday Senate testimony that she expects inflation to remain elevated. Some investors expect inflation to have already peaked but remain uncertain about the pace at which higher prices come down.

“As long as inflation remains elevated and continues to come down very slowly, the Fed is going to increase interest rates in order to combat these high inflation rates,” said Ayako Yoshioka, a senior portfolio manager at Wealth Enhancement Group. “It’s a very difficult thing for the Fed to engineer a soft landing.”

The yield on the benchmark 10-year Treasury note eased to 2.969% from 3.037% on Monday. Yields fall when prices rise. 

“With yields at 3%, it shows that the market hasn’t decided if we’re going to have a recession or if we have one, how severe it’s going to be,” said Julien Lafargue, chief market strategist at Barclays Private Bank. “That is what you would want to own if you expect a recession.”

In other corporate news, Kohl’s shares jumped $3.97, or 9.5%, to $45.59 after The Wall Street Journal reported the department-store chain is in exclusive talks to be sold to retail holding company Franchise Group. The deal may value the company at about $8 billion. 

Arcade company Dave & Buster’s Entertainment rose $1.81, or 4.9%, to $39.06 after reporting a jump in sales growth.

Shares of BuzzFeed climbed 6 cents, or 2.7%, to $2.29, recovering some ground after plunging 41% on Monday after a ban that prevented executives and major investors from selling shares was lifted.

Twitter shares rose 57 cents, or 1.4%, to $40.13 after Elon Musk threatened Monday to end his acquisition of the social media platform, saying the company didn’t comply with requests for data about spam accounts. 

Overseas, the pan-continental Stoxx Europe 600 slipped 0.3%. In Asia, major benchmarks were mixed. The Shanghai Composite Index added 0.2%, while Hong Kong’s Hang Seng Index declined 0.6%. Japan’s Nikkei 225 edged up 0.1%. 

The Japanese yen weakened 0.7%, reaching the lowest level against the dollar since April 2002. The yen has sold off this year as the Bank of Japan has remained committed to ultra-easy monetary policy, while many other central banks have begun lifting interest rates to combat rapid inflation. 

Source By: The wall street journal