Major U.S. indexes are moving higher Wednesday as stability in the bond market translates into gains for stocks.
A key measure of inflation was lower than expected last month, helping to calm investors who had worried that prices could rise too quickly as the economy recovers.
The S&P 500 index rose 0.7% as of 12:21 p.m. Eastern. The Dow Jones Industrial Average rose 377 points, or 1.2%, to 32,205 and the technology-heavy Nasdaq rose 0.4% following a jump of 3.7% on Tuesday.
U.S. consumer prices increased 0.4% in February, the biggest increase in six months. However, a closely watched measure called core inflation, which excludes food and energy prices, posted a much smaller 0.1% gain. The rise for core inflation was also below economists’ expectations.
The latest report on inflation, along with the Federal Reserve remaining dovish on raising interest rates, has helped ease concerns over the recent rise in bond yields, said Katie Nixon, chief investment officer at Northern Trust Wealth Management.
Bond yields rose sharply over the past month due to expectations for faster growth and the inflation that could follow. The fall in bond prices attracted investors reluctant to pay high prices for stocks, especially tech stocks that looked most expensive.
“It’s clear that investors expect there to be a bump in inflation in the short term, but the long-term view is pretty benign,” Nixon said. “Investors are coming around to the view that it’s not a bad backdrop for risk assets.”
Markets have benefited from calmer bond trading the last few days. The yield on the 10-year Treasury note fell to 1.52% on Wednesday. It hit 1.60% late last week, which led to a sell-off in stocks.
Investors are are also closely watching Washington and betting the latest $1.9 trillion in government stimulus will help lift the U.S. economy out of its coronavirus-induced malaise. The package set for final approval in the U.S. House on Wednesday provides direct payments of up to $1,400 for most Americans and extends emergency unemployment benefits to support consumer spending, the economy’s main engine.
Banks were among the biggest gainers. Bank of America rose 2.2% and Citigroup rose 2.6%. More than 80% of companies in the S&P 500 notched gains.
Technology stocks lagged the broader market, though the majority of companies in that sector were still making gains.
General Electric fell 7% after the company said it would wind down its GE Capital financing business and merge its jet leasing business with Ireland-based AerCap.