S&P 500, Nasdaq advance as investors switch focus to upcoming inflation data

By David French and Lisa Pauline Mattackal

(Reuters) -The S&P 500 and Nasdaq Composite rose on Tuesday, recouping some of the previous session's losses, as investors shifted attention to upcoming third-quarter earnings and inflation data which may offer the next clues for how interest rate cuts will unfold.

All three of the main indexes suffered a sell-off on Monday, falling roughly 1% each, as they were pressured by surging Treasury yields, escalating Middle East tensions, and a re-evaluation of U.S. rate expectations.

Investors have been locked in all year on the U.S. Federal Reserve and how it plans to deliver its long-expected bout of interest rate cuts, with each new economic data set studied for how it could influence the thinking of the central bank.

Last week's data releases, including Friday's stronger-than-expected jobs report, had prompted investors to trim their rate cut bets slightly, albeit leaning more toward a 25 basis-point cut at the next Fed meeting in November, as opposed to 50 bps.

Traders have now priced in a nearly 89% chance of a 25 basis-point interest rate cut in November, according to CME FedWatch.

Markets now await consumer price index data, due this Thursday, for the next signpost on the path of interest rates.

"The Fed keeps telling you that they're data-dependent - so the end of this week is big to see whether or not inflation is truly tamed," said Kim Forrest, chief investment officer at Bokeh Capital Partners.

"But the Fed has been signaling where - not necessarily when - rates are going, and they have signaled that they're going lower."

Monday's pressure on equity markets from rising Treasury yields eased somewhat on Tuesday. The two-year Treasury yield slipped slightly from Monday's highs, but the yield on the benchmark 10-year note remained above 4%.

This abatement allowed investors to return to betting on high-growth stocks, which benefit from lower debt costs to fuel their growth, such as technology companies.

The information technology index led the gainers among the S&P 500 sectors, rising 1.7%. It was aided by advances of 5.4% and 4.8%, respectively, by Palantir Technologies (NYSE:PLTR ) and Palo Alto Networks (NASDAQ:PANW ).

Heavyweight Nvidia (NASDAQ:NVDA ) was also 3.7% higher.

At 1:57 p.m. EDT, the S&P 500 was up 39.02 points, or 0.69%, to 5,734.96 points, while the Nasdaq Composite climbed 195.38 points, or 1.09%, to 18,119.29. The Dow Jones Industrial Average rose 32.93 points, or 0.08%, to 41,987.17.

Most S&P sectors gained. Among the few trailing were the materials sector, which fell 0.6% to a low of more than two weeks, as metal prices slipped on waning optimism over China's stimulus measures.

U.S.-listed shares of Chinese companies also slid, tracking losses in domestic stocks. Shares of Alibaba (NYSE:BABA ) Group, JD (NASDAQ:JD ).com and PDD Holdings lost between 5.8% and 7.7%.

Energy was also a decliner, slipping 2.4% as oil prices retreated following Monday's rally. [O/R]



Third-quarter earnings are also coming in to focus, with major banks scheduled to report this Friday. The estimated earnings growth rate for the S&P 500 is 5%, according to LSEG estimates.

PepsiCo (NASDAQ:PEP ) reversed premarket losses, rising 1.5%, after the snack maker trimmed its forecast for annual sales growth, but reported adjusted earnings per share above estimates.

Source: Investing.com