Stocks rally ahead of anticipated inflation data

NEW YORK — Wall Street rose Monday as traders made their final moves ahead of a report that could show whether inflation is cooling in the right way or setting the market up for worse pain.

The S&P 500 climbed 1.1 percent in anticipation of Tuesday’s report on inflation at the consumer level across the country. The Dow Jones Industrial Average gained 376.66 points, or 1.1 percent, while the Nasdaq composite rose 1.5 percent.

Stocks were coming off their worst week in nearly two months, the latest stumble for a market that has struggled for more than a year on worries about high inflation and the Federal Reserve’s response to it.

The Fed has aggressively hiked rates to their highest level since 2007 to drive down the worst inflation in generations. High rates can stamp out inflation, but they do so at the risk of sending the economy into a sharp recession and dragging on investment prices.

Economists expect Tuesday’s report to show inflation slowed to 6.2 percent in January. That would be down from 6.5 percent before and from a peak of more than 9 percent in the summer.

Perhaps more important than the overall number is what the data show specifically about prices for services outside of housing, such as haircuts or airfares. Inflation has remained stubbornly high there, when it’s started to come down in other areas.

Worse-than-expected trends on inflation would raise worries that the Federal Reserve will stay firmer on rates than expected, which could mean more pain for Wall Street. Cooler-than-expected figures could fan anew hopes for the Fed to take it easier on rates.

Everyone agrees that inflation is heading in the right direction. The question is how quickly it will come down to the Fed’s target of 2 percent.

Treasury yields were mixed Monday ahead of the inflation report. The yield on the 10-year Treasury, which helps set rates for mortgages and other important loans, dipped to 3.70 percent from 3.75 percent late Friday.

The two-year yield, which tends to move more on expectations for the Fed, was at 4.54 percent and close to its highest since November.

All the worries about inflation and rates are happening against the backdrop of a decidedly lackluster earnings reporting season.

Pessimism is also building about earnings for the first three months of 2023, with forecasts coming down.

All told, the S&P 500 rose 46.83 points to 4,137.29, the Dow gained 376.66 to 34,245.93 and the Nasdaq climbed 173.67 to 11,891.79.