Wall St rally after inflation data fades; Fed minutes on tap

U.S. stock indexes gave up most of their gains on Wednesday as investors reassessed the outlook for U.S. monetary policy following inflation data, while focus shifted to minutes from the Federal Reserve’s March meeting.

Stock futures rallied close to 1% and Treasury yields slid after data showed U.S. consumer prices barely rose in March as the cost of gasoline declined.

However, the major benchmarks shed gains quickly, briefly turning lower, as investors focused on underlying inflation pressures which rose in line with economists’ estimates.

“The initial reaction was overdone in the sense the beat was on the headline number which is not where the Fed is focused, obviously it’s the core number that matters” said Michael O’Rourke, chief market strategist at JonesTrading.

“We’re still running well above the Fed’s 2% inflation target.

Money market participants largely stuck to bets that the U.S. central bank will hike rates by 25 basis points next month, according to CME Group’s Fedwatch tool.

Richmond Fed President Thomas Barkin also poured cold water on market optimism after flagging that there was still time before inflation falls back to the Fed’s 2% goal. San Francisco Fed President Mary Daly said there was “more work to do” on Fed rate hikes.

The banking turmoil last month and a batch of weak economic data had raised expectations of the Fed ending its aggressive monetary tightening campaign soon amid fears of a recession, but jobs data last week signaled resilience in the labor market.

Major technology and other growth stocks such as Alphabet Inc, Tesla Inc and Amazon.com Inc gave up early gains and fell between 0.2% and 1.3%.

Among the 11 major S&P sectors, consumer discretionary was the worst hit, while materials and healthcare were the top gainers.

Investors will now closely monitor the minutes from the U.S. central bank’s March policy meeting later in the day for further clues on the trajectory of interest rates.

Investors are also awaiting the first-quarter earnings season, which begins in earnest on Friday with results from three major banks, Citigroup Inc, JPMorgan Chase & Co and Wells Fargo & Co.

At 12:03 p.m. ET, the Dow Jones Industrial Average was up 91.94 points, or 0.27%, at 33,776.73, the S&P 500 was up 8.90 points, or 0.22%, at 4,117.84, and the Nasdaq Composite was up 7.99 points, or 0.07%, at 12,039.86.

American Airlines Group Inc dropped 8.8% and touched an over three-month low after forecasting a lower-than-expected profit for the first quarter as the carrier battles high fuel costs.

The wider airlines index fell 3.7%.

Advancing issues outnumbered decliners by a 1.53-to-1 ratio on the NYSE and 1.08-to-1 ratio on the Nasdaq.

The S&P index recorded 12 new 52-week highs and two new lows, while the Nasdaq recorded 52 new highs and 119 new lows.

(Reporting by Sruthi Shankar and Ankika Biswas in Bengaluru; Editing by Shounak Dasgupta)