Wall Street rose on Tuesday as wage growth data indicated that the Federal Reserve’s aggressive approach to taming inflation was taking hold ahead of a decision by the central bank, while gains on the Dow were limited by weak earnings updates.
U.S. labor costs increased at their slowest pace in a year in the fourth quarter as wage growth slowed, bolstering expectations of the Fed slowing the pace of its interest rate increases.
The Fed will decide on rates on Wednesday, with traders betting on a 25-basis-point hike (bps) at the end of the its two-day meeting, and a terminal rate of 4.9% in June.
“As the Fed meeting begins today, they’ll be looking at every index that could 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 this means costs have come down, and that’s a key factor for future wage inflation.”
Ten of the 11 major S&P 500 sector indexes were up, with consumer discretionary (.SPLRCD) rising 0.9% after an 8.2% gain in General Motors Co (GM.N).
The automobile conglomerate forecast stronger-than-expected earnings for 2023 and said it would cut $2 billion in costs.
United Parcel Service (UPS.N) jumped 4% on strong quarterly earnings, boosting the Dow Jones Transport Average index (.DJT).
Capping gains on the blue-chip Dow Jones Industrial Average (.DJI) was Caterpillar Inc (CAT.N), down 5.3% after reporting a drop in quarterly profit on higher manufacturing costs.
McDonald’s Corp (MCD.N) dropped 1.9% on warnings of short-term inflationary pressures, while Pfizer Inc (PFE.N) dipped 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 got a little bit ahead of itself and so are 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 4,031.07, and the Nasdaq Composite (.IXIC) was up 54.94 points, or 0.48%, at 11,448.75.
Wall Street started the year on a strong footing and is set to end January higher, with the Nasdaq (.IXIC) up more than 9% as investor interest in growth stocks bounced back.
Hopes of a downshift in the Fed’s policy have eased worries of pressured valuations of tech and other high growth stocks.
As many as 165 S&P 500 companies have reported earnings for the fourth-quarter. Earnings are expected to have fallen 2.4% for the quarter, compared with 3% decline expected a day earlier, according to Refinitiv data.
Advancing issues outnumbered decliners by a 2.14-to-1 ratio on the NYSE and by a 2.23-to-1 ratio on the Nasdaq.
The S&P index recorded four new 52-week highs and no new low, while the Nasdaq recorded 32 new highs and 14 new lows.