Fresh signs of at least the potential for a resolution in Eastern Europe sharpened risk appetite on Tuesday, even as the grim 2-10 yield curve edged even closer to inversion.
During the latest round of talks with Ukraine today, Russian Deputy Defense Minister Alexander Fomin said his country’s military would “drastically” cut its military presence in Kyiv. It sparked another day of buying with investors, who were undeterred by a US official’s skeptical comment to the media that Russia’s moves indicated “redeployment, not withdrawal”.
Wall Street was also undeterred by a potential reversal in the two- and 10-year Treasury rates – “potential” being the key word, as various data sources conflicted over whether the yield at two years was simply equal to the yield at 10 years. or exceeded it.
Even then, Lauren Goodwin, economist and portfolio strategist at New York Life Investments, cautions against using a yield reversal as an hourglass.
“While curve inversion has always been an important market signal of recession risk, it doesn’t tell us much about when recession is likely to occur,” she says.
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Real estate investment trusts (REITs), including operator of shopping centers Simon Real Estate Group (GSP, +4.8%) and public storage (PSA, +3.4%) posted the largest gains on Tuesday, with the sector rising 2.9% to take the lead in the S&P500 (+1.2% to 4,631). the Nasdaq Compound had an even better day, up 1.8% to 14,619, while Dow Jones Industrial Average recorded a gain of 1.0% to 35,294.
Other news on the stock market today:
- Small cap Russell 2000 climbed 2.7% to 2,133.
- U.S. crude oil futures fell 1.6% to end at $104.24 a barrel.
- Gold Futures Contracts fell 1.4% to settle at $1,912.20 an ounce.
- Bitcoin slipped 0.5% to $47,720.70. (Bitcoin trades 24 hours a day; prices shown here are as of 4 p.m.)
- Shares of Robin Hood (HOOD) jumped 24.2% after the financial services platform said it extended trading hours for clients. Clients on the HOOD platform will now be able to trade between 7 a.m. and 8 p.m. ET, giving them an additional four hours. This big upward movement has reduced HOOD’s deficit since the beginning of the year. Heading into today, stocks are down almost 28% for the year to date.
- fedex (FDX) gained 3.7% on news Fred Smith will step down as CEO, effective June 1. Smith has overseen the delivery giant since he founded the company in 1973. He will be succeeded by Raj Subramaniam, current president and chief operating officer of Fedex. “We expect a smooth transition as FedEx appears to have groomed Mr. Subramaniam to become the company’s next CEO,” Oppenheimer analyst Scott Schneeberger (Perform) said. “In recent years, Mr. Smith appears to have ceded increasing operational and investor responsibility to his key reports, particularly to Mr. Subramaniam.”
We’ll get to the March jobs tally later this week, but another data point on Wall Street’s watchlist is the Personal Consumer Expenditure (PCE) price index.
The report, due out on Wednesday, represents the Federal Reserve’s preferred inflation indicator – another critical factor in the direction of the market from here.
“We think it’s important to highlight the historic impact that inflation can have on stock market valuation,” said John Lynch, chief investment officer of Comerica Wealth Management. “Specifically, high levels of inflation … have historically put pressure on the price-to-earnings (P/E) ratio of the S&P 500 Index. Historically, when the CPI approaches 8.0%, the average [trailing 12-month] The P/E for the S&P 500 is around 12, which could take the index to unspeakable levels.”
Given that the S&P 500 is currently trading at more than 26 times earnings, that would be very bad news indeed.
You can fight inflation via just about any type of investment you like. Those looking to make concentrated bets against rising prices may consider these five stocks poised to push higher in an inflationary environment, while those who prefer a diversified approach might prefer these five mutual funds instead.
But some of the most interesting tools in the toolkit are exchange-traded funds (ETFs) that fight inflation. Many of these ETFs simply happen to be positioned in sectors of the market that are doing well as prices rise, but in some cases an inflation-resistant portfolio is the explicit goal.