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Easing inflation worries lift Wall Street ahead of Fed decision


Traders work on the trading floor at the New York Stock Exchange (NYSE) in New York City, U.S., January 27, 2023. REUTERS/Andrew Kelly

U.S. stocks rose on Tuesday as labor cost 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. employment 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 report was a little lower than expected and that seemed to really spark a move in markets,” said Randy Frederick, managing director at Charles Schwab.

“It shows that the overall economy is slowing down, but it should be a positive overall because it means that the Fed’s actions to quell inflation are actually working.”

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.

Ten of the 11 major S&P 500 sector indexes were up, with consumer discretionary (.SPLRCD) rising 1.2% after a 7.2% 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 4.2% 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 4.2% after reporting a drop in quarterly profit on higher manufacturing costs, while McDonald’s Corp (MCD.N) dropped 2.4% on warnings of short-term inflationary pressures.

“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 12:05 p.m. ET, the Dow Jones Industrial Average (.DJI) was up 62.08 points, or 0.18%, at 33,779.17, the S&P 500 (.SPX) was up 22.13 points, or 0.55%, at 4,039.90, and the Nasdaq Composite (.IXIC) was up 97.78 points, or 0.86%, at 11,491.59.

PulteGroup Inc (PHM.N) jumped about 9%, lifting the PHLX Housing index (.HGX) to a 10-month high, after its quarterly earnings surpassed Wall Street expectations aided by higher house prices.

The S&P 500 and the Dow are set to end January higher for the first time since 2019, while the Nasdaq is up more than 9% as appetite for growth stocks bounced back.

Hopes of a downshift in the Fed’s policy has eased worries of pressured valuations for the rate-sensitive group.

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 a 3% decline expected a day earlier, according to Refinitiv data.

Advancing issues outnumbered decliners by a 3.81-to-1 ratio on the NYSE and by a 2.88-to-1 ratio on the Nasdaq.

The S&P index recorded five new 52-week highs and no new low, while the Nasdaq recorded 62 new highs and 15 new lows.