Stocks faced another volatile session, with traders awaiting more clues on whether the Federal Reserve will be able to pull off a soft landing that brings down inflation without triggering a recession.

After several twists and turns, the S&P 500 closed higher, led by gains in economically sensitive shares like commodity producers and banks. Small caps also climbed, while tech companies underperformed. Treasury 10-year yields stabilized amid speculation that the worst of the bond-market selloff may be over even though the Fed’s monetary-policy tightening is only just getting underway.

Markets have whipsawed amid concerns about persistent inflationary spirals and risks to global growth from rising yields. Fed Chair Jerome Powell and his colleagues are expected to raise rates by 50 basis points Wednesday and signal they’re on track to lift them to around 2.5 per cent by the end of the year. It’s not clear, though, if that’ll be enough to tame inflation, which is running above the central bank’s target.

The Fed will have to boost rates to as much as 5 per cent just as the world faces a “perfect storm” of potential recessions in the U.S., European Union and China, former International Monetary Fund chief economist Kenneth Rogoff said. Bond markets will continue to face pressures from inflation and tighter monetary policy, making stocks a better bet during this stage of the economic cycle, Pacific Investment Management Co. noted in its May asset-allocation outlook.

Comments:

• “The 50-basis-point hike is baked in the cake. We see less than 10 per cent chance of a 75-basis point hike,” said Leo Grohowski, chief investment officer for BNY Mellon Wealth Management, adding that traders will be closely watching any clues from Powell on “whether or not 75 basis points could be in the cards for the June meeting.”
• “Because the market has priced in a 50-basis-point rate hike at the Federal Reserve’s May meeting, the focus will immediately shift to just how many half-point hikes the Fed expects to initiate over the balance of 2022,” wrote Danielle DiMartino Booth, chief executive officer of Quill Intelligence. “Powell’s greatest folly would be to insist that the economy is very strong in the face of overwhelming evidence that it is slowing and slowing fast.”
• “Clearly there’s just a great deal of volatility,” said Mark Hamilton, chief investment officer at Hirtle Callaghan & Co. “The biggest risk possibly really going on into next year is this question of: ‘Does the Fed tighten at the same time as other forces are causing the economy to weaken, and does that lead to a recession?”’

U.S. employers saw record levels of job openings and workers quitting in March, pointing to intensifying labor-market tightness that will keep pushing wages higher at a rapid clip. The data come ahead of Friday’s payrolls report, which is currently forecast to show the U.S. added 390,000 jobs in April.

Corporate highlights:

• AT&T Inc. is raising prices on mobile-service plans in an effort to squeeze more revenue from customers and blunt the effects of quickening inflation.
• Apple Inc. has recruited a longtime Ford Motor Co. executive who helped lead safety efforts and vehicle engineering, a sign the iPhone maker is again ramping up development of an electric car.
• Pfizer Inc. kept its outlook for annual sales of its COVID-19 vaccine and treatment, disappointing investors who looked for the products to continue driving growth.

Key events this week: 

• Fed rate decision, briefing with Chair Jerome Powell, Wednesday
• EIA crude oil inventory report, Wednesday
• Bank of England rate decision and briefing, Thursday
• OPEC+ convenes virtually for a regular meeting, Thursday
• U.S. April jobs report, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.5 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 0.1 per cent
• The Dow Jones Industrial Average rose 0.2 per cent
• The MSCI World index rose 0.4 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.3 per cent
• The euro rose 0.2 per cent to US$1.0526
• The British pound was little changed at US$1.2497
• The Japanese yen was little changed at 130.12 per dollar

Bonds

• The yield on 10-year Treasuries was little changed at 2.98 per cent
• Germany’s 10-year yield was little changed at 0.96 per cent
• Britain’s 10-year yield advanced five basis points to 1.96 per cent

Commodities

• West Texas Intermediate crude fell 2.2 per cent to US$102.89 a barrel
• Gold futures rose 0.1 per cent to US$1,866 an ounce