Stocks Are Rising as Bond Yields Dip

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Stocks were rising Tuesday, even after inflation came in higher than expected for March. Bond yields were lower, providing a boost to the stock market.

Just before noon, the

Dow Jones Industrial Average
rose 255 points, or 0.7%, while the

S&P 500
advanced 1%, and the

Nasdaq Composite
surged1.4%.

The consumer-price index rose 8.5% year over year, above estimates of 8.4% and up from the prior result of 7.9%. The core CPI result, which strips out food and energy prices, gained 6.5%, just above the prior result of 6.4%. That signifies that the price of goods and services across the board is still rising. A decline in used-car prices weighed on the inflation results, economists from Morgan Stanley and Citigroup noted. 

But the overall high inflation wasn’t bringing bond yields higher Tuesday, as those have recently seen a big move upward.

The 10-year Treasury note was yielding 2.707% Tuesday, down 0.075 percentage point. That’s a relief to the stock market after a recent surge that has driven the yield up from 2.2% just a month ago. Expectations that the Federal Reserve will soon reduce its bondholdings, driving less money into the bond market, have helped spur the selloff in Treasuries. 

That rise in yields has dented the stock market, with the S&P 500 down almost 5% from its March 29 close, the high point of a mini-rally from the index’s lowest close of the year hit earlier that month. Higher bond yields make future profits less valuable, reducing stock valuations.

It was the same story for short-term interest rates. The 2-year Treasury yield, which attempts to forecast the level of the benchmark lending rate a couple years from the present, was down 0.078 percentage points to 2.418%. That signifies the market isn’t growing any more concerned that the Fed will have to hike interest rates as many times as currently expected.

With inflation continuing its rapid rise, the movement in the bond market might seem strange. But while the core CPI result was “extremely high,” said Tom Graff, head of fixed income at Brown Advisory, “it means they [Federal Reserve officials] don’t have to be all the more aggressive in 2023.”

Markets had already been anticipating that the Fed will raise rates about 10 more times from here.

The stock market is feeling fine—for now.

Looking ahead, “the persistent inflationary pressures may continue to weigh on investor sentiment,” wrote John Lynch, chief investment officer at Comerica Wealth Management.”

It’s not all about the data, however. First-quarter earnings season is beginning, and while just 15 companies in the S&P 500 will report results this week, they include major U.S. financial groups

JPMorgan Chase

(ticker: JPM) and

BlackRock

(BLK) on Wednesday, before

Citigroup

(C),

Morgan Stanley

(MS),

Goldman Sachs

(GS), and

Wells Fargo

(WFC) on Thursday.

In the digital asset space,

Bitcoin
and other cryptocurrencies tumbled. Bitcoin prices lost almost 5% over the past 24 hours and were hovering above $40,000, while smaller peer

ether
declined 4% to just above $3,000. Cryptos are theoretically supposed to trade independently from mainstream financial markets, but have shown themselves to be largely correlated to other risk-sensitive assets like tech stocks.

Overseas, the pan-European

Stoxx 600
declined 0.3% and Tokyo’s

Nikkei 225
—which has shown itself in the past to be correlated with the Nasdaq—lost 1.8%.

Here are five stocks on the move Tuesday:

CarMax

(KMX) stock dropped 5.4% after the company reported a profit of 98 cents a share, missing estimates of $1.27 a share, on sales of $7.7 billion, above expectations for $7.5 billion. 

Crowdstrike

(CRWD) stock rose 5.9% after getting upgraded to Buy from Neutral at Goldman Sachs. 

Domino’s Pizza

(DPZ) stock rose 1.4% after getting upgraded to Buy from Neutral at Citigroup. 

Aptiv PLC

(APTV) stock gained 4.1% after getting upgraded to Equal Weight from Underweight at Wells Fargo. 

Starbucks

(SBUX) stock rose 0.6% even after getting downgraded to Neutral from Buy at Citigroup. 

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com and Jack Denton at jack.denton@dowjones.com