Stocks Jump on Hopes of Lower Inflation

Stocks wobbled on Tuesday afternoon, giving up much of a sharp rally in the morning that came after as a gauge of wholesale inflation rose more slowly than expected, bolstering recent data that showed signs of consumer inflation cooling.

The S&P 500 moved 0.5 percent higher, down from a gain of more than 1 percent earlier, after the release of the Producer Price Index, which rose more slowly than economists expected. The tech-heavy Nasdaq Composite index gained 1 percent.

The positive surprise on wholesale prices added to data last week that also showed consumer prices rising more slowly than expected, bolstering hopes among investors that the Federal Reserve would soon slow its campaign of raising interest rates to fight inflation, which has also weighed on stock prices.

“Right now the only thing that matters is inflation and I think you’re seeing that we’re having more economic data points support the idea that inflation is coming down quickly,” said Edward Moya, a senior market analyst at OANDA.

There were also signs on Tuesday that consumer spending was holding up despite high inflation, with Walmart reporting higher-than-expected quarterly sales and raising its annual profit forecast headed into the holiday shopping season. The company’s stock rose strongly, as did the shares of other major retailers like Amazon and Target.

“There’s more good news for our economy this morning, and more indications that we are starting to see inflation moderate,” President Biden in a statement on Tuesday.

Fed officials have tried to temper investor enthusiasm after bumper gains for stocks in recent trading sessions, saying that the job of raising interest rates to help reduce inflation is still far from complete.

“The worst thing you can do is stop, and then it takes back off again,” Christopher Waller, a Fed governor, said of the Fed’s actions to address inflation at an event in Australia on Monday morning. “Everybody should just take a deep breath, calm down — we’ve got a ways to go yet.”

However, investors expect that the Fed could move more slowly when increasing interest rates, taking time to assess the effects. The Fed has raised interest rates by three-quarters of a percentage point at its past four meetings, but it is widely expected to step down to a half-point move in December.

“In the last several days we’ve gotten really good reports that the inflationary environment is not playing out as badly as we previously thought and the market loves that,” said Jonathan Golub, the chief U.S. equity strategist at Credit Suisse.

Lael Brainard, the Fed’s vice chair, said during an interview at a Bloomberg event on Monday that she would favor slowing the pace of increases soon so that the central bank could take stock of how much economic tightening it had done.

“By moving forward at a pace that’s more deliberate, we’ll be able to assess more data,” Ms. Brainard said.

The yield on the 10-year U.S. Treasury bond, a benchmark for borrowing costs, fell to 3.79 percent, the lowest in more than a month.

In Hong Kong, the Hang Seng stock index rose 4.1 percent after what were deemed to be constructive talks between Mr. Biden and his Chinese counterpart, Xi Jinping. The Stoxx 600 in Europe rose 0.4 percent.

Jeanna Smialek contributed reporting.