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Wall Street rises after encouraging inflation data with Fed on deck

2023-01-31T19:13:30Z

Traders work on the trading floor at the New York Stock Exchange (NYSE) in New York City, U.S., January 27, 2023. REUTERS/Andrew Kelly

Major U.S. stock indexes rose on Tuesday as labor cost data encouraged investors about the Federal Reserve’s aggressive approach to taming inflation a day ahead of the central bank’s critical policy decision.

Investors also digested a full plate of earnings reports, with share declines in Caterpillar (CAT.N) and McDonald’s (MCD.N) following their results capping gains on the Dow.

U.S. labor costs increased at their slowest pace in a year in the fourth quarter as wage growth slowed, Labor Department data showed. The U.S. central bank on Wednesday is expected to hike the Fed funds rate by 25 basis points, following a 2022 in which the Fed aggressively boosted rates to control soaring inflation.

“The fact that we have had goods inflation cooling, we have had housing cool, and the last shoe to drop is probably this labor services inflation – we may be getting early indications of that,” said Mona Mahajan, senior investment strategist at Edward Jones.

The Dow Jones Industrial Average (.DJI) rose 163.23 points, or 0.48%, to 33,880.32, the S&P 500 (.SPX) gained 29.51 points, or 0.73%, to 4,047.28 and the Nasdaq Composite (.IXIC) added 107.90 points, or 0.95%, to 11,501.72.

Gains were widespread, with 10 of the 11 S&P 500 sectors in positive territory, led by materials (.SPLRCM) and consumer discretionary (.SPLRCD). Utilities (.SPLRCU) were the lone sector logging a decline.

The S&P 500 was on track to post its first increase for the month of January since 2019, following a brutal 2022 in which the benchmark index sank 19.4%.

Aside from the Fed’s rate decision on Wednesday, Chair Jerome Powell’s news conference will be scrutinized for whether the rate-hiking cycle may be coming to a close and for signs of how long rates could stay elevated.

“Jerome Powell and team are probably looking at this easing of financial conditions that has happened over the last month, and we will see if they try to push back against it to any extent,” Mahajan said. “I don’t think they would want markets to move up too far, too fast either.”

In earnings news, Exxon Mobil Corp (XOM.N) shares rose 2% after the oil major posted a $56 billion net profit for 2022, setting not only a company record but a historic high for the Western oil industry.

United Parcel Service Inc (UPS.N) shares climbed 4.4% after its quarterly profit topped estimates, while General Motors Co (GM.N) shares jumped 8% after it forecast stronger-than-expected earnings for 2023.

Caterpillar Inc shares slumped over 3% as the machinery maker’s fourth-quarter earnings slid by 29%. McDonald’s shares slumped 1.8% after the burger chain warned inflation will weigh on margins in 2023.

A busy week for markets will also include reports in coming days from Apple Inc (AAPL.O), Amazon.com Inc (AMZN.O) and Alphabet Inc (GOOGL.O), central bank meetings in Europe and the monthly U.S. employment report.

Advancing issues outnumbered declining ones on the NYSE by a 4.28-to-1 ratio; on Nasdaq, a 3.11-to-1 ratio favored advancers.

The S&P 500 posted 6 new 52-week highs and no new lows; the Nasdaq Composite recorded 73 new highs and 19 new lows.

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