U.S. stocks open higher after cooling inflation data

What’s driving markets

The U.S. consumer-price index rose 0.1% in March, according to data released by the Bureau of Labor Statistics on Wednesday. Economists polled by the Wall Street Journal had forecast a 0.2% increase. The yearly rate of inflation slowed to 5% from 6%.

The so-called core rate of inflation that omits food and energy prices rose a sharper 0.4%, as expected, but the pace of annual core CPI inflation went up to 5.6% from 5.5%, also in line with Wall Street’s expectation.

Stocks opened higher after the release of CPI data, which added to the growing evidence that the Federal Reserve’s year-long cycle of interest-rate increases is having an effect on the economy.

“Today’s CPI takes some heat off the Fed, for now. Moderating price pressures combined with signs of cooling in the labor market will offer a temporary reprieve to markets,” Ronald Temple, chief market strategist at Lazard, wrote in emailed comments.

“While this is good news, it does not mean tightening is over,” as core inflation still remains well above the Fed’s 2% target, Temple noted.

Meanwhile, “investors should realize that today’s CPI, a lagging indicator, doesn’t include the time period during the banking crisis, which is a deflationary shock,” said Gina Bolvin, president of Bolvin Wealth Management Group. “The CPI is backwards-looking and the Fed still has to consider how much of a credit crunch to factor into the economy.”

She added: “Friday’s data on retail sales and big banks’ earnings are pivotal. The market’s reaction to this week’s data may influence the Fed. A rally gives the Fed luxury to continue to raise rates. A correction will cause them to consider a pause. The wealth effect matters and affects consumer spending.”

Adding to investor caution is the looming first-quarter U.S. corporate earnings season, which gets into gear on Friday when the likes of JPMorgan Chase
JPM,
+0.02%,
Wells Fargo
WFC,
-0.21%
and Citigroup
C,
-0.81%
will present their numbers.

Traders are positioned for disappointment, with speculator’s net-short bets on the S&P 500 at the highest level since 2011.

They are right to be wary, according to Evercore ISI strategist Julian Emanuel. This reporting season “will mark the fourth consecutive quarter where 2023 estimated earnings per share ratchets down,” he noted.

“However, unlike the huge rallies during the July and October seasons and January’s choppier advance … [first-quarter 2023] earnings season is likely to be a negative catalyst at the Index level. A test of the lower end of the SPX 3,800 to 4,200 range is in store. And we’d take this opportunity to remind our readers that no bear market has ever ended before the recession started,” Emanuel said in a note to clients.

Investors will also be expecting minutes of the Federal Reserve’s March policy meeting due 2 p.m. Eastern time.

Companies in focus

• Shares of Tessco Technologies Inc. 
  TESS,
  +86.81%
   shot up 87% toward a two-year high Wednesday after the wireless-infrastructure company announced an agreement to be acquired by Alliance Corp. and GetWireless LLC in a deal reflecting a 91.5% premium.

• Shares of American Airlines Group Inc.
  AAL,
  -9.15%
  declined 4.9% Wednesday after the air carrier provided a somewhat downbeat first-quarter profit outlook.

• ShotSpotter Inc., whose technology is used by law enforcement to detect gunshots, has rebranded under a new name, SoundThinking Inc.
  SSTI,
  +0.63%,
  after its stock tumbled following last week’s Chicago mayoral election. Its shares went up 0.9% on Wednesday.