Wall Street rallies ahead of U.S. inflation report

Wall Street rose Monday as traders made their final moves ahead of today’s U.S. consumer inflation report.

The S&P 500 climbed 1.1% in anticipation of the consumer price index report. The Dow Jones Industrial Average gained 1.1%, while the Nasdaq composite rose 1.5%.

Stocks were coming off their worst week in nearly two months, the latest stumble for a market that has struggled for more than a year on worries about high inflation and the Federal Reserve’s response to inflation.

The Fed has aggressively lifted rates to the highest level since 2007 to drive down the worst inflation in generations and cool the economy. High rates can stamp out inflation, but they do so at the risk of sending the economy into a sharp recession and dragging on investment prices.

Treasury yields jumped last week after investors pulled their forecasts for rates closer to the Fed’s. The central bank has been consistently saying it plans to keep rates higher for longer to ensure the job is done on inflation.

Yields were mixed Monday ahead of the inflation report. The yield on the 10-year Treasury, which helps set rates for mortgages and other important loans, dipped to 3.70% from 3.75% late Friday. The two-year yield, which tends to move more on expectations for the Fed, was at 4.54% and close to its highest since November.

All the worries about inflation and rates are happening against the backdrop of a decidedly lackluster earnings reporting season. Companies in the S&P 500 are on track to report a nearly 5% drop in earnings for the final three months of 2022, compared with a year earlier, according to FactSet.

By the count of strategists at Credit Suisse, this is shaping up to be the worst earnings reporting season outside of a recession in 24 years. Pessimism is also building about earnings for the first three months of 2023, with forecasts coming down.

A continued decline in corporate earnings is one of the reasons strategists at Morgan Stanley are cautious about the rally stocks have made since the start of the year, even if they gave back some of it last week. The S&P 500 so far is up 7.8% for 2023.

The bulk of earnings reports have already come in for this season, with big utility companies and retailers among the companies toward the tail end. This week will include reports from Southern Co., Coca-Cola and Kraft Heinz.

Fidelity National Information Services Inc. tumbled 12.5% despite reporting slightly stronger profit and revenue than expected for its latest quarter. The company gave a forecast for 2023 that fell short of Wall Street’s expectations and said it will spin off its Worldpay merchant business after acquiring it in a deal less than four years ago.

On the winning end was Henry Schein Inc., a provider of health care products and services. The company rose 3.2% after announcing a program to buy back up to $400 million of its stock. Investors like such programs because they put cash directly in the pockets of shareholders.

All told, the S&P 500 rose 46.83 points to 4,137.29, the Dow gained 376.66 to 34,245.93 and the Nasdaq climbed 173.67 to 11,891.79.