Wall Street buoyed by easing inflation concerns ahead of Fed decision

  • McDonald’s warns of short-term inflationary pressures
  • US labor cost growth slows in fourth quarter
  • Fed decision on interest rates on Wednesday
  • GM up on firm forecast, Caterpillar hit by lower Q4 profit
  • Indexes rose: Nasdaq 0.48%, S&P 0.33%, Dow 0.07%

Jan 31 (Reuters) – Wall Street rose on Tuesday as wage growth data indicated the Federal Reserve’s aggressive approach to controlling inflation is taking hold ahead of a central bank decision, while gains in the Dow were capped by a weak earnings update.

US labor costs rose at their slowest pace in a year in the fourth quarter as wage growth slowed, bolstering expectations that the Fed will slow rate hikes.

The Fed will decide on rates on Wednesday, with traders betting on a 25-basis-point hike (bps) at the end of its two-day meeting and a terminal rate of 4.9% in June.

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“As the Fed begins its meeting today, they’re going to look at every indicator that can give them a better judgment on inflation, and this is one of them,” said Peter Cardillo, chief market economist at Spartan Capital Securities LLC.

“Labor costs are still high, but that means costs are down, and that’s a key driver for future wage inflation.”

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Ten of the 11 major S&P 500 sector indexes rose, with Consumer Discretionary ( .SPLRCD ) up 0.9% after General Motors Co ( GM.N ) gained 8.2%.

The automobile conglomerate forecast stronger-than-expected revenue for 2023 and said it would cut costs by $2 billion.

United Parcel Service (UPS.N) jumped 4% on strong quarterly earnings, lifting the Dow Jones Transport Average Index (.DJT).

Capping gains for the blue-chip Dow Jones Industrial Average ( .DJI ) was Caterpillar Inc ( CAT.N ), down 5.3% after reporting a quarterly profit drop on higher production costs.

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McDonald’s Corp ( MCD.N ) fell 1.9% on a warning of short-term inflationary pressures, while Pfizer Inc ( PFE.N ) fell 0.3% after the drugmaker’s full-year revenue outlook for its COVID-19 products fell short of expectations.

“With additional earnings coming in this week, participants are a little concerned that the market may have gotten a little ahead of itself and are therefore a little cautious heading into the Fed meeting,” said Robert Pavlik, senior portfolio manager at Dakota Wealth.

At 10:13 a.m. ET, the Dow Jones Industrial Average (.DJI) was up 23.71 points, or 0.07%, at 33,740.80, the S&P 500 (.SPX) was up 13.30 points, or 0.33%, at Na4,701 and the Composite (.IXIC) was up 0.30 points at 54.94. or rose 0.48% to 11,448.75.

Wall Street started the year on a strong note and will end January higher with the Nasdaq (.IXIC) up more than 9% as investor interest in growth stocks returns.

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Hopes of a downshift in Fed policy eased concerns about stressed valuations in tech and other high-growth stocks.

165 S&P 500 companies reported earnings for the fourth quarter. According to Refinitiv data, earnings are expected to fall 2.4% for the quarter, compared with a 3% decline expected a day earlier.

Advancing issues outnumbered decliners by a 2.14-to-1 ratio on the NYSE and 2.23-to-1 on the Nasdaq.

The S&P index recorded four new 52-week highs and no new lows, while the Nasdaq recorded 32 new highs and 14 new lows.

Reporting by Johan M Cherian and Shreyshi Sanyal in Bengaluru Editing by Vinay Dwivedi, Soumyadev Chakraborty and Sriraj Kalluvilla

Our standards: Thomson Reuters Trust Policy.

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