Market Snapshot: Dow up almost 250 points, building on rebound as bond yields stabilize

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What’s driving the markets?

Investors on Wednesday were enjoying a breather from a recent bond selloff. The yield on the 10-yearTreasury note TMUBMUSD10Y, 1.925% was last down 3 basis points to 1.922% after reaching 1.954% on Tuesday, its highest since 2019.

But investors are still keeping an eye on the key 2% level on the 10-year, especially as important inflation data looms for Thursday. Annual consumer price inflation is expected to rise to 7.2% for January, after reaching a 40-year high of 7% in December.

Read: ‘This is not 1980’: What investors are watching as next U.S. inflation reading looms

“Today we are primarily up with somewhat of an easing off in the bond selloff,” said Kent Engelke, chief economic strategist at Capitol Securities Management, about stocks edging higher, in a phone interview.

“I do think the CPI [reading] is going to be strong, but I also think it’s discounted by the market,” he said, adding that “all but the worst is already factored into the bond market” in the intermediate term.

Some on Wall Street have forecast seven rate hikes this year by the Federal Reserve as it seeks to quell inflation, but Engelke said such views likely are “overshot” and sees only three to four increases as likely.

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The January consumer-price index report is due Thursday morning, with economists surveyed by The Wall Street Journal forecasting a 0.4% monthly rise and a year-over-year increase of 7.2%, after a nearly 40-year high of 7% in December.

Persistently high inflation has prompted the Fed to signal a much more aggressive stance, with interest rates expected to rise beginning at the central bank’s next policy meeting in March and a reduction in the size of its balance sheet expected to follow. Investors have penciled in an aggressive series of rate increases, which has weighed particularly hard on tech and other growth stocks in the new year.

“The markets already expect hawkish Fed activity, so there is unlikely to be a major resulting move from this week’s data,” said Lauren Goodwin, economist and portfolio strategist at New York Life Investments, in a note.

Goodwin said investors should avoid the temptation to lean hard into strategies based solely on playing defense against inflation because there is a trade-off between that approach and the potential for total returns.

“As a result, we lean heavier into strategies that seek to provide inflation resilience while leveraging durable investment themes. Priority asset classes include infrastructure, real estate, global exposure, short duration and floating rate securities,” she wrote.

Atlanta Federal Reserve Bank President Raphael Bostic, in a television interview, said he expects the Fed to deliver three, quarter-point rate increases in 2022, while “leaning” toward the possibility of a fourth. He also said he would like to see the central bank significantly reduce the size of its balance sheet. Bostic isn’t a voting member this year of the Fed’s policy-setting Federal Open Market Committee.

Cleveland Fed President Loretta Mester, who is a voting member, said on Wednesday that she doesn’t see a “compelling case” for a 50-basis-point hike in March, but said that if inflation fails to moderate later this year the Fed might need to raise interest rates at a faster pace.

Investors also were sifting through a heavy slate of corporate results. And more earnings will roll in Wednesday, with The Walt Disney Co. DIS, +2.07% and MGM Resorts International MGM, +1.89% and ride-share operator Uber Technologies Inc. UBER, +4.15% in the spotlight after the market’s close.

Read: After ‘baptism by fire,’ Disney CEO looks for a rebound

Which stocks are in focus?

• Shares of Chipotle Mexican Grill Inc. CMG, +9.66% rose almost 10% after the fast-food chain more than doubled its profit to a record high in 2021, and spoke of expansion plans.
• CVS Health Corp. CVS, -5.22% stock fell 5.3% after profit and earnings for the health services and drugstore operator beat expectations, though its full-year outlook was mixed.
• Mandiant Inc. MNDT, +4.31% shares rose 4.1% after the cybersecurity software and services company reported forecast-beating results. Shares climbed during Tuesday’s regular session following a report that Microsoft Corp. MSFT, +1.32% was in talks to buy the company.
• Lyft Inc. LYFT, +5.02% shares fell rose 4.9% after the ride-share operator met its goal of full-year positive Ebitda and spoke of a “solid” fourth quarter, but offered a cautious forecast.

How are other assets trading?

• The ICE U.S. Dollar Index  DXY, -0.25%,  a measure of the currency against a basket of six major rivals, fell 0.2%.
• West Texas Intermediate crude for March delivery  CL.1, +0.29% CLH22, +0.29% rose 0.2% to $89.60 a barrel. Gold futures for April delivery  GC00, +0.44% GCJ22, +0.44% edged up 0.4% after ending Tuesday at its highest since Jan. 26.
• Bitcoin  BTCUSD, -0.07% fell 0.1% to trade near $44,300.
• The Stoxx 600 Europe SXXP, +1.72% rose 1.7%, while the FTSE 100  UKX, +1.01% gained 1%.
• The Shanghai Composite  SHCOMP, +0.79%  rose 0.7%, while the Hang Seng Index  HSI00, -0.54%  jumped 2% and Japan’s Nikkei 225 NIK, +1.08% rose 1%.

Barbara Kollmeyer contributed reporting