Stocks climbed to a fresh record as the latest inflation figures did little to alter bets the Federal Reserve will cut rates this year — even if officials keep a more cautious stance for now.

An equity decline that lasted just a few minutes gave way to a rebound that pushed the S&P 500 up more than 1 per cent. Notwithstanding the fact that the consumer price index continued to show signs of “stickiness,” the overall report came only slightly above economist estimates. While that’s not ideal for a central bank trying to get close to its 2 per cent target, the CPI was not a shocker to Wall Street traders dreading another post-inflation rout.

“Fears have been circulating prior to the release for an extra-hot print, which appears to have boosted markets as they failed to materialize,” said Josh Jamner at ClearBridge Investments. “Overall, there should be relatively little market impact from today’s release given it is largely consistent with the prior understanding of the disinflationary process.”

The S&P 500 closed around 5,175. Tech led gains on Tuesday, with Oracle Corp. soaring 12 per cent amid cloud revenue growth. Nvidia Corp. rallied over 7 per cent. Boeing Co.’s losses in 2024 approached 30 per cent. Treasuries remained lower after a US$39 billion sale of 10-year notes and a growing slate of new corporate bonds.

For a glimpse on how anxiety was running high before Tuesday’s CPI print, the options market provided some clues.

Traders were more concerned about a potentially big S&P 500 move post-CPI than they were about the Fed’s rate decision next week, according to Citigroup Inc. analysts.

After closing at its highest since October, the Cboe One-Day Volatility Index — a measure of cost in S&P 500 options with maturities of no more than 24 hours — fell sharply on Tuesday. The more famous 30-day volatility index known as the VIX also retreated after the inflation data.

Now the relative sense of calm in the face of a strong inflation print was unusual. In fact, the advance in stocks marked a break from how stocks have traded on CPI days since the Fed started hiking rates.

A 1 per cent move of in the S&P 500 or larger has only happened on a handful of occasions on the day of the CPI release since March 2022. Most of the time, however, gains were on the back of lower — not higher — core inflation.

“It’s proving difficult to see what may stop the market’s momentum, as earnings, inflation, and interest rates are moving in the right direction,” said Skyler Weinand at Regan Capital. 

The S&P 500 will deliver stronger-than-expected earnings in 2024, powered by resilient economic growth and artificial intelligence breakthroughs, according to Bank of America Corp. strategists — who are now among Wall Street’s most bullish profit forecasters.

The team including Ohsung Kwon and Savita Subramanian raised their earnings-per-share estimate to $250 from $235, tying with BMO Capital Markets and Deutsche Bank AG for the most optimistic outlook among strategists tracked by Bloomberg. 

Subramanian last week raised her S&P 500 target to 5,400.

As a flurry of Wall Street forecasters bump up their optimism toward U.S. stocks in lockstep, Morgan Stanley’s Mike Wilson won’t budge, arguing he sees no justification to upgrade his outlook given an absence of broad earnings growth.

The strategist stuck to his year-end S&P 500 forecast of 4,500 in an interview on Tuesday with Bloomberg Surveillance Radio, even as a growing list of peers at firms including Bank of America Corp., Goldman Sachs Group Inc., and UBS Group AG have raised projections for the benchmark. 

“A lot of folks have raised their price targets because of higher multiples,” Wilson said. “We’re not willing to do that.”

The stock market may be rallying, but the yield curve remains inverted — which suggests that there are plenty of investors who are still concerned about economic conditions this year, according to Weinand at Regan Capital.

“While a recession would naturally steepen out the yield curve to positive territory, we think the yield curve can steepen this year without a recession,” he noted. “Investors will eventually realize that we can achieve a soft landing and that sentiment shift can push 10-year Treasury bond yields back above 2-year Treasury bond yields.”

The Fed is widely expected to hold interest rates steady for a fifth straight meeting when policymakers gather March 19-20. Much of the focus by investors will be on the Federal Open Market Committee’s quarterly forecasts for rates, including whether fresh employment and inflation figures have prompted any changes.

While Tuesday’s CPI reading may breathe new life into the sticky inflation narrative, whether it actually delays rate cuts is a different story, according to Chris Larkin at E*Trade from Morgan Stanley.

“Sticky doesn’t necessarily mean overheating,” Larkin noted.

To Bret Kenwell at eToro, regardless of whether the inflation print is ideal, investors mostly want to know whether they can count on what’s expected — and right now, that’s for a June rate cut.

Swaps are pricing in nearly 70 per cent odds that the central bank will start easing in June and enact at least three quarter-point cuts over the course of 2024.

Corporate Highlights:

• 3M Co. named aerospace veteran William Brown as its new chief executive officer, a move aimed at providing fresh direction for a company mired in mounting legal liabilities and a much-diminished stock price.
• Boeing Co.’s aircraft deliveries trailed rival Airbus SE’s last month as the U.S. planemaker dealt with the growing fallout from an early-January accident that has since plunged the company into crisis.
• United Airlines Holdings Inc. has told Boeing to stop building 737 Max 10 jets for the carrier, opting to switch to a smaller variant and the rival Airbus SE A321 until the U.S. planemaker can pull the stretched single-aisle through its long-delayed certification.
• Southwest Airlines Co. plans to cut capacity this year, halt most hiring and review its spending plans in response to reduced aircraft deliveries from Boeing Co., the planemaker facing regulatory and criminal investigations in the wake of a near-catastrophic accident in January.
• Kohl’s Corp. reported same-store sales in the fourth quarter that missed the average analyst estimate, suggesting the department store chain struggled to attract shoppers during the crucial holiday shopping season.

Key events this week:

• Eurozone industrial production, Wednesday
• ECB Governing Council member Yannis Stournaras speaks, Wednesday
• Volkswagen, Adidas earnings, Wednesday
• U.S. PPI, retail sales, initial jobless claims, business inventories, Thursday
• China property prices, Friday
• Japan’s largest union federation announces results of annual wage negotiations, just ahead of Bank of Japan policy meeting, Friday
• Bank of England issues inflation survey, Friday
• U.S. industrial production, University of Michigan consumer sentiment, Empire Manufacturing, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 1.1 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 1.5 per cent
• The Dow Jones Industrial Average rose 0.6 per cent
• The MSCI World index rose 0.9 per cent

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was unchanged at $1.0926
• The British pound fell 0.2 per cent to $1.2794
• The Japanese yen fell 0.5 per cent to 147.68 per dollar

Cryptocurrencies

• Bitcoin fell 1 per cent to $71,389.82
• Ether fell 1.3 per cent to $3,980.55

Bonds

• The yield on 10-year Treasuries advanced six basis points to 4.15 per cent
• Germany’s 10-year yield advanced three basis points to 2.33 per cent
• Britain’s 10-year yield declined three basis points to 3.95 per cent

Commodities

• West Texas Intermediate crude fell 0.2 per cent to $77.79 a barrel
• Spot gold fell 1.2 per cent to $2,156.94 an ounce