The benchmark S&P 500 edged higher on Tuesday, with economy-sensitive energy and material stocks leading gains ahead of Wednesday's inflation data that is likely to determine the U.S. Federal Reserve's next policy move.
Hopes that the Fed will soon end its aggressive monetary policy tightening campaign spurred a rebound in the S&P 500 this month after the collapse of two U.S. mid-sized lenders sparked a selloff in March.on Friday, however, lifted bets that the U.S. central bank will increase rates by 25 basis points in May, with money market traders pricing in a nearly 70% chance of such a move, according to CME Group's Fedwatch tool.
This marks a shift in traders' bets of a pause in the Fed's policy tightening after recent weak economic data raised the possibility of a U.S. recession. "People are waiting for the important events - CPI, PPI and banks that are going to report earnings," said Randy Frederick, managing director of trading and derivatives at Charles Schwab.
"If the Fed does get to a point where it simply holds rates steady, the markets can potentially do well with that. My concern is if they continue to tighten, it's going to continue to cause stress on some banks." Data on Wednesday is expected to show consumer prices grew 5.2% in March after a 6.0% rise in February. However, core prices are seen rising 5.6%, at a slightly faster pace compared with a 5.5% rise in February.
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