Stocks stagger higher after mixed report on April inflation

NEW YORK (AP) — Stocks are stumbling higher in jumbled trading on Wall Street Wednesday after a report showed inflation slowed last month, though it was still worse than feared.

The S&P 500 was 1% higher after waffling between modest gains and losses in the first few minutes of trading. The Dow Jones Industrial Average was up 330 points, or 1%, at 32,491, as of 10:23 a.m. Eastern time, and the Nasdaq composite was 0.6% higher.

Wall Street has been transfixed on the nation’s high inflation, and where it’s heading, because it’s causing the Federal Reserve to yank the supports it propped under markets for most of the pandemic. The Fed has flipped aggressively toward raising interest rates after seeing high inflation last longer than it expected.

Wednesday’s report from the U.S. Labor Department showed inflation slowed a touch in April, down to 8.3% from 8.5% in March. Investors also found some glass-half-full signals that inflation may be peaking.

Nevertheless, the numbers were still higher than economists forecast. They also showed a bigger increase than expected in prices outside food and gasoline, something economists call “core inflation” and which can be more predictive of future trends.

“Core inflation came in hot, and that’s what really matters to the Fed at this point,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.

Economists said the data will keep the Fed on track for rapid and potentially sharp increases in interest rates in upcoming months, though the mixed report led to erratic trading on Wall Street.

Treasury yields initially jumped but pared their gains as the morning progressed. Stocks recovered their early losses as yields regressed.

The 10-year Treasury yield climbed as high as 3.08% but was back to 3.02% in later trading. The two-year yield, which moves more on expectations for Fed action, rose to 2.69% from 2.62% late Tuesday. It had climbed as high as 2.75% shortly after the report’s release.

To corral high inflation, the Fed has already pulled its key short-term interest rate off its record low near zero, where it spent most of the pandemic. It also said it may continue to hike rates by double the usual amount at upcoming meetings. Such moves by design would slow the economy, in hopes of quashing inflation.

The Fed risks causing a recession if it raises rates too high or too quickly. Even if it’s deft enough to avoid a downturn, higher rates push down on prices for stocks and all kinds of investments in the meantime because higher-yielding, safe Treasury bonds suddenly become a stronger competitor for investors’ dollars.

Higher rates are hurting most the investments that were the biggest winners of the ultra-low rates of the pandemic. That includes big technology companies, other high-growth stocks and even cryptocurrencies. The Nasdaq’s loss of roughly 25% so far this year is considerably worse than the nerly 16% drop for the S&P 500, for example,

It’s not just interest rates that are pushing markets lower. In China, shutdowns meant to stem COVID are raising the risk of more supply chain disruptions for global companies and a slowdown in the world’s second-largest economy.

The war in Ukraine, meanwhile, is threatening to keep inflation high because of disruptions to the oil and natural gas markets.

Crude jumped again on Wednesday, with a barrel of benchmark U.S. oil rising 5.1% to $104.86. Brent crude, the international standard, added 4.2% to $106.79.

That helped energy stock in the S&P 500 jump 3.1%, by far the biggest gain among the 11 sectors that make up the index. Exxon Mobil rose 3%, and ConocoPhillips spurted 3.1% higher.

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AP Business Writer Elaine Kurtenbach contributed.

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