A renewed wave of dip buying sent stocks and bonds higher, following a slide triggered by an unexpected pickup in U.S. inflation.

As investors awaited the next few economic reports that will be key in shaping the Federal Reserve’s rate path, Treasuries rebounded — led by gains in shorter maturities. Equities closed near session highs, with big tech leading the way. Nvidia Corp. topped Alphabet Inc.’s market value as the chip giant’s rally shows no signs of cooling. Wall Street’s “fear gauge” — the VIX — tumbled after a surge fueled by a reset in traders rate-cut bets.

“The stock market never moves higher without fits and starts along the way,” said Jeremy Straub at Coastal Wealth. “The economy remains strong and isn’t in need of lower interest rates, which is ultimately supportive of stock prices.”

The S&P 500 reclaimed its 5,000 mark, while gains in the Nasdaq 100 topped 1 per cent. In late hours, Cisco Systems Inc., the largest maker of computer networking equipment, said it plans to cut thousands of jobs after a slowdown in corporate technology spending wiped out its sales growth. Two-year U.S. yields fell eight basis points to 4.58 per cent. Bitcoin climbed above $51,000.

Matt Maley at Miller Tabak + Co. says the stock-market bounce is giving investors a lot of relief from Tuesday’s “scare.” However, he points out that Treasury yields remain at or very-near their recent highs.  

“Therefore, if those yields do not roll over very quickly, it’s something that could finally create somewhat impactful headwinds for the stock market,” Maley noted.

A Bloomberg index of global debt has dropped 3.5 per cent this year, wiping out all of its gains since Dec. 12, the day before the Fed announcement that month. Slower-than-forecast UK inflation numbers for January offered some relief to Treasuries on Wednesday, lowering the U.S. 10-year yield after Tuesday’s 14-basis-point surge.

To Chris Senyek at Wolfe Research, the market remains a “show me” story. 

“For the overall market to experience an official correction, we believe investors will need to see additional evidence that the Fed won’t cut in-line with expectations and/or the growth outlook is decelerating fast enough to spark recession fears,” he noted.

“The ‘hot’ inflation data do not change our base case for a soft landing of slower growth, falling inflation, and 100bps of Fed rate cuts this year, likely starting in the second quarter,” said Solita Marcelli at UBS Global Wealth Management. “But we are continuing to monitor the incoming data and the start of rate cuts could be delayed should the economic prints remain strong.”

The reversal in bond yields Wednesday also favored a rebound in big tech, the group that has powered the stock-market resurgence.

A day after the Nasdaq 100 popped above 18,000 for the first time, investors are once again grappling with what the prospect of higher-for-longer interest rates means for tech valuations that are back at levels exceeded only during the pandemic-era rebound and the dot-com bubble.

Yet the Nasdaq’s 1.6 per cent slide Tuesday was only the worst in two weeks, and a measure of implied volatility on the index remained firmly in calm territory. But the prospect of sticky inflation leaves bulls clinging to a Goldilocks scenario that sees the American economy continue to thrive — without generating pricing pressures that force the Fed back into rate hikes.

From a technical perspective, Dan Wantrobski at Janney Montgomery Scott says there will possibly be further “choppy back-and-forth action” this week as more Fed officials are expected to chime in on inflation data ahead of the producer price index on Friday.

He’s keeping a close eye on the 4,920 level for the S&P 500, which was the pivot point from Tuesday’s session. 

“A break below this threshold would trigger more selling pressures ahead,” he noted.

Corporate Highlights:

• Uber Technologies Inc. will buy back as much as $7 billion in shares to return capital to shareholders after reporting its first full year of operating profit and consistent positive free cash flow in 2023.
• Lyft Inc. issued a massive correction to its outlook for earnings margin in 2024, saying its margin is expected to expand by 50 basis points — not the 500 basis points written into an earnings presentation released earlier on Tuesday.
• Airbnb Inc. ended 2023 stronger than analysts’ had expected but suggested that demand in the current quarter wouldn’t be as robust as the last.
• Robinhood Markets Inc. reported revenue that topped estimates and executives said deposit growth is outpacing that of last year.

Key Events This Week:

• Japan GDP, industrial production, Thursday
• U.S. Empire manufacturing, initial jobless claims, industrial production, retail sales, business inventories, Thursday
• ECB President Christine Lagarde speaks, Thursday
• Atlanta Fed President Raphael Bostic speaks, Thursday
• Fed Governor Christopher Waller speaks, Thursday
• ECB chief economist Philip Lane speaks, Thursday
• U.S. housing starts, PPI, University of Michigan consumer sentiment, Friday
• San Francisco Fed President Mary Daly speaks, Friday
• Fed Vice Chair for Supervision Michael Barr speaks, Friday
• ECB executive board member Isabel Schnabel speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 1 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 1.2 per cent
• The Dow Jones Industrial Average rose 0.4 per cent
• The MSCI World index rose 0.7 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.2 per cent
• The euro rose 0.2 per cent to $1.0727
• The British pound fell 0.2 per cent to $1.2564
• The Japanese yen rose 0.1 per cent to 150.60 per dollar

Cryptocurrencies

• Bitcoin rose 4.2 per cent to $51,661.01
• Ether rose 5 per cent to $2,763.94

Bonds

• The yield on 10-year Treasuries declined five basis points to 4.27 per cent
• Germany’s 10-year yield declined six basis points to 2.34 per cent
• Britain’s 10-year yield declined 11 basis points to 4.04 per cent

Commodities

• West Texas Intermediate crude fell 1.6 per cent to $76.62 a barrel
• Spot gold fell 0.1 per cent to $1,990.66 an ounce