Stocks rebounded in a volatile session, with traders awaiting more clues on the Federal Reserve’s plans to bring down the hottest inflation in four decades without triggering a recession.

The S&P 500 rose for a second day, while the technology-heavy Nasdaq 100 underperformed major benchmarks. Treasury 10-year yields retreated after jumping above 3 per cent and hitting the highest since November 2018. The dollar also fell.

Markets have whipsawed this year amid concerns about persistent inflationary spirals and risks to global growth from rising yields. Fed Chair Jerome Powell and his colleagues are expected to raise rates by 50 basis points Wednesday and signal they’re on track to lift them to around 2.5 per cent by the end of the year. It’s not clear, though, if that’ll be enough to tame inflation, which is running above the central bank’s 2 per cent target.

The Fed will have to boost rates to as much as 5 per cent to ease price pressures just as the world faces a “perfect storm” of potential recessions in the U.S., European Union and China, former International Monetary Fund chief economist Kenneth Rogoff said. Bond markets will continue to face pressure from inflation and tighter monetary policy from the world’s central banks, making stocks a better bet during this stage of the economic cycle, Pacific Investment Management Co. said in its May asset-allocation outlook.

Comments:

  • “Clearly there’s just a great deal of volatility,” said Mark Hamilton, chief investment officer at Hirtle Callaghan & Co. “The biggest risk possibly really going on into next year is this question of: ‘Does the Fed tighten at the same time as other forces are causing the economy to weaken, and does that lead to a recession?”’
  • “Because the market has priced in a 50-basis-point rate hike at the Federal Reserve’s May meeting, the focus will immediately shift to just how many half-point hikes the Fed expects to initiate over the balance of 2022,” wrote Danielle DiMartino Booth, chief executive officer of Quill Intelligence in Dallas. “Powell’s greatest folly would be to insist that the economy is very strong in the face of overwhelming evidence that it is slowing and slowing fast.”
  • “The anticipation of a change in policy seems to be more powerful than the actual event,” wrote Art Hogan, chief market strategist at National Securities. “When the Fed hiked rates back in March, the S&P 500 went on to rally about 10 per cent in the weeks after the meeting. We would not be surprised to see a similar pattern after this week’s meeting, as markets seem to sell on rumors, and buy on news.”

U.S. employers saw record levels of job openings and workers quitting in March, pointing to intensifying labor-market tightness that will keep pushing wages higher at a rapid clip. The data come ahead of Friday’s monthly jobs report from the Labor Department, which is currently forecast to show the U.S. added 390,000 jobs in April.

Corporate Highlights:

  • Pfizer Inc. kept its outlook for annual sales of its COVID-19 vaccine and treatment, disappointing investors who looked for the products to continue driving growth.
  • Expedia Group Inc. reported revenue in the first quarter that jumped 80 per cent, in line with analysts’ estimates, and signaled a strong summer travel season after two years of pent-up demand.
  • Estee Lauder Cos. slumped after pandemic lockdowns in China contributed to what one analyst called a “catastrophic” forecast cut.
  • Biogen Inc.’s chief executive officer will depart and the biotechnology company is planning more deep cost cuts as it tries to move beyond a disastrous rollout for its Alzheimer’s disease drug Aduhelm.

Key events this week: 

  • Fed rate decision, briefing with Chair Jerome Powell, Wednesday
  • EIA crude oil inventory report, Wednesday
  • Bank of England rate decision and briefing, Thursday
  • OPEC+ convenes virtually for a regular meeting, Thursday
  • U.S. April jobs report, Friday

Some of the main moves in markets:

Stocks

  • The S&P 500 rose 0.8 per cent as of 11:08 a.m. New York time
  • The Nasdaq 100 rose 0.4 per cent
  • The Dow Jones Industrial Average rose 0.5 per cent
  • The Stoxx Europe 600 rose 0.5 per cent
  • The MSCI World index rose 0.6 per cent

Currencies

  • The Bloomberg Dollar Spot Index fell 0.4 per cent
  • The euro rose 0.4 per cent to US$1.0544
  • The British pound rose 0.2 per cent to US$1.2523
  • The Japanese yen rose 0.2 per cent to 129.92 per dollar

Bonds

  • The yield on 10-year Treasuries declined six basis points to 2.92 per cent
  • Germany’s 10-year yield declined three basis points to 0.94 per cent
  • Britain’s 10-year yield advanced five basis points to 1.95 per cent

Commodities

  • West Texas Intermediate crude fell 1 per cent to US$104.14 a barrel
  • Gold futures rose 0.6 per cent to US$1,875.70 an ounce