Stocks Bounce Higher on Inflation Report

NEW YORK (AP) -- Stocks are bouncing back on Wall Street Tuesday, and the areas of the market most beaten down in recent days are leading the way.

The S&P 500 was 1% higher following back-to-back losses driven by worries about the economic collateral damage as the Federal Reserve tackles high inflation more aggressively. A report on Tuesday morning showed inflation last month was again at its highest level in generations, driven by soaring gasoline prices in particular, but the reading was relatively close to economists' expectations.

Another faint silver lining was that inflation wasn't as bad as economists expected, when ignoring the costs of food and fuel. While it's laughable to ask households to forget soaring prices at the gasoline pump and the grocery store, the Federal Reserve pays more attention to what's called "core inflation" while setting policy because it's less volatile. And core inflation on a month-over-month basis moderated to its slowest level since September.

"Hopefully this is as bad as it gets," said Brian Jacobsen, senior investment strategist at Allspring Global Investments.

"The risk is that a red hot labor market grows cold under the force of those higher food, fuel, and financing costs. This is a time when economic resilience will be tested."

The Dow Jones Industrial Average was up 209 points, or 0.6%, at 34,517, as of 10:27 a.m. Eastern time. A rebound for technology stocks drove the Nasdaq composite 1.6% higher.

Stocks in recent days have been trading in the opposite direction of Treasury yields, which have climbed to their highest levels since well before the pandemic. Yields jumped as investors brace for the Federal Reserve to hike short-term rates at a faster pace than typical and to aggressively pare its trove of bonds, whose buildup helped keep longer-term rates low.

But Treasury yields pulled back on Tuesday immediately following the inflation report. The 10-year yield sank to 2.70% from 2.77% late Monday. It was as high as 2.83% overnight, before the inflation report's release. The 10-year yield nevertheless remains well above the 1.51% level where it began the year.

A measure of nervousness among stock investors also fell immediately after the inflation report.

Stocks elsewhere around the world were lower or mixed, as unease continues to hang over markets about the war in Ukraine, Chinese efforts to contain COVID outbreaks and where inflation and interest rates are heading.

In Asia, South Korea's Kospi fell 1%, Japan's Nikkei 225 lost 1.8% and stocks in Shanghai climbed 1.5%. In Europe, Germany's DAX lost 0.4%, the French CAC 40 slipped 0.3% and the FTSE 100 in London dropped 0.7%.

The price of U.S. crude oil climbed 5.8% to $99.73, keeping the pressure on high inflation. Brent crude, the international standard, rose 5.7% to $104.14.

Higher interest rates from the Federal Reserve would slow the economy, which would hopefully knock down high inflation. Consumer prices were 8.5% higher in March than a year earlier, accelerating from February's 7.9% inflation rate and the highest since 1981. To bring it down, the Fed revealed in the minutes from its latest meeting that it's prepared to hike short-term rates by half a percentage point, double the usual amount, at some upcoming meetings, something it hasn't done since 2000.

The worry is the Federal Reserve may be so aggressive about hiking interest rates that it forces the economy into a recession.

Higher interest rates also put downward pressure on all kinds of investments, with those seen as the most expensive hardest hit. That's because when investors are earning more in interest to own relatively safe bonds, they're less willing to pay higher prices for riskier stocks. Technology and other high-growth stocks that have been some of the stock market's biggest recent winners have been in the spotlight in particular.

On Tuesday tech stocks were the strongest force lifting the S&P 500, as Apple, Microsoft and Nvidia all rose at least 1%.

More swings may be in store for stocks as companies prepare to report their earnings for the first three months of the year. Delta Air Lines, JPMorgan Chase and other big-name companies will kick off the reporting season on Wednesday.

Earnings were able to stay at record levels through the end of last year as companies raised prices for their products and services enough to protect their profit margins. But the further acceleration of inflation may be straining that formula.

American Airlines Group said Tuesday that it expects to report slightly better revenue for the first quarter than it earlier expected. But it also said that it expects to report cost trends at the higher end of the range it had previously forecast, after ignoring fuel expenses and some other items.

The airline's stock rose 0.7%.

While they can swing sharply for many reasons in the short term, stock prices tend to track the path of corporate profits over the long term.