Equities made modest gains after a volatile day of trading Tuesday as Wall Street waits to find out how aggressively the Federal Reserve will raise interest rates during Wednesday’s policy meeting.
The Standard & Poor’s 500 closed 0.5% higher after slipping briefly into the red earlier in the day. The industry average of the Dow Jones was up 0.5% and the Nasdaq was up 0.2%.
Banks and other financial stocks helped lift the market. Energy stocks also made solid gains after encouraging quarterly earnings reports from several oil and gas companies. Retailers and other companies that rely on direct consumer spending have lagged behind the market in general.
Bond yields were mixed. The 10-year Treasury yield fell to 2.97% from 2.99% on Monday. Treasury yields have generally risen throughout the year as investors brace for higher interest rates, which will make lending more expensive.
The Fed is expected to raise its benchmark rate twice as usual this week as it intensifies its fight against inflation, which has been at its highest in four decades.
“Right now, the market wants to know that the Fed will be ahead of inflation,” said Megan Horneman, chief investment officer of Verdence Capital Advisors. “What would scare the market is if there is any hint of accommodation in their tone.”
The S&P 500 was up 20.10 points to 4,175.48. The Dow gained 67.29 points to finish at 33,128.79. The Nasdaq rose 27.74 points to 12,563.76.
Tech stocks maintained slight gains after a mixed morning. Many companies in the industry have high valuations and therefore have more strength in pushing the major indices up or down. Apple increased by 1%.
Shares of smaller companies outperformed the broader market. The Russell 2000 advanced 15.94 points, or 0.9%, to 1,898.86.
The market’s moderate gains follow an end-of-day rally on Monday that gave indices a positive start to May after a brutal April.
“The rally in stocks yesterday and today is just positioning and squaring ahead of tomorrow’s Fed meeting,” said Zach Hill, portfolio manager at Horizon Investments.
Wall Street’s main target in the coming days is the Fed. The central bank will meet on Tuesday and release a statement on Wednesday. Investors are expecting this week to hike its benchmark rate twice as usual as it intensifies its fight against inflation, which is at its highest in four decades. It has already raised its key overnight rate once, the first such hike since 2018, and Wall Street expects several large hikes in the coming months.
The Fed’s aggressive shift to raise interest rates comes as a surge in inflation puts more pressure on businesses and consumers. Rising costs of energy and other commodities have prompted many companies to raise prices and provide cautious forecasts to their investors. Wall Street and economists fear that rising prices for food, gas, clothing and other commodities will slow consumer spending and curb economic growth.
Investors took a close look at the latest round of corporate earnings reports to get more details on how inflation is affecting business and consumer activity.
Homeware giant Clorox was up 3% after posting solid quarterly profits, but it also cut its profit forecast for the year due to higher costs. CVS Health will report its financial results on Wednesday.
BP jumped 8% after posting its highest quarterly profit in more than a decade thanks to rising oil and gas prices. Devon Energy was up 10.2% and Diamondback Energy gained 6.8% after reporting strong financial results.
Investors are receiving some updates on the job market, which was slow to recover from the pandemic initially but got stronger. The Bureau of Labor Statistics reported Tuesday that employers posted a record 11.5 million job vacancies in March, meaning the United States now has two unprecedented job opportunities for every unemployed person.
On Friday, the Labor Department is expected to report that the economy added 396,000 jobs in April, according to FactSet. This would mark an unprecedented 12th consecutive month in which new hires totaled approximately 400,000 or more positions.