Stocks rebound on hope inflation is peaking, Nasdaq adds 1%

Stocks rose Tuesday, boosted by data showing that so-called core inflation rose slightly less than expected last month.

The Dow Jones Industrial Average gained 241 points, or 0.7%, following the report. S&P 500 jumped 1.1%. The Nasdaq Composite climbed 1.9%, after falling more than 2% in the prior session as tech stocks that have been hit hard this year on higher rate fears rebounded.

Consumer prices for March increased 1.2% month-to-month and 8.5% annually, the Labor Department said on Tuesday. But traders were focusing on the core reading, which excludes food and energy prices. Core CPI in March increased 0.3%, below the consensus economist estimate from Dow Jones of 0.5%. Core prices on an annual basis were up 6.5%.

“It’s a red hot number but the market’s reaction for now suggests its priced in, especially with the month over month core read coming in below expectations,” wrote Mike Loewengart, managing director of investment strategy at E-Trade from Morgan Stanley. “The big debate is whether elevated reads like these are the new normal, or if we’re beginning to see a light at the end of the inflationary tunnel.”

The 10-year Treasury yield retreated from a three-year high following the report as traders were betting the core reading could mean inflation is showing signs of peaking.

That helped tech stocks recover some of their losses this month. The tech-heavy Nasdaq is down more than 5% this month, as investors sell growth names amid rising rates.

Microsoft spiking 1.6%. Chip stocks Nvidia popped 3.7%, Qualcomm jumped 2.2% and Broadcom rallied 2.4%. Tesla rallied 3.9%.

The recent spike in U.S. inflation has helped increase expectations of tighter monetary policy from the Federal Reserve. The Fed raised rates at its March meeting, and it’s expected to hike more throughout the year.

“The news is positive, and people will be very happy to see the auto inflation bubble start to dissipate, but a 6.5% core inflation number is very hot, and the Fed is still going to be aggressive this year,” said Adam Crisafulli, founder of Vital Knowledge. “Perhaps if energy prices die down and other categories moderate for months the Fed policy guidance will begin to ease, but for now its status quo on tightening.”

The 10-year Treasury yield fell more than 6 basis points to 2.717% following the CPI report after earlier touching 2.82% a level not seen in more than three years. (1 basis point equals 0.01%).

The gain in stocks was capped slightly as oil prices surged on Tuesday, making back losses from the prior session amid fears that Covid lockdowns in China would hurt demand. The international benchmark Brent crude jumped 5.4% to $103.82 per barrel. Meanwhile, West Texas Intermediate crude futures gained 5.3% to $99.21 per barrel.

Energy stocks tracked oil prices upward. Devon Energy jumped 4.1%, Marathon Oil popped 4%, Chevron spiked 2.4%.

Investors are also awaiting the start of earnings season set to kick off Wednesday with JPMorgan and Delta Air Lines, followed by several big banks on Thursday.

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—CNBC’s Pippa Stevens contributed to this report.

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