U.S. stocks rose for a second day, climbing to session highs in the last hour of trading amid a broad-based rally. Treasuries pared gains and the dollar slipped.

Back-to-back gains in the S&P 500 clawed back all of last week’s losses. The tech-heavy Nasdaq 100 advanced with megacaps Apple Inc. and Microsoft Corp. offsetting declines in ecommerce giant Amazon.com Inc. 

Consumer discretionary stocks led declines throughout the day, with Target Corp. falling after the retailer cut its profit outlook for the second time in three weeks amid an inventory surplus. 

Sentiment whipsawed for much of the day with traders hesitant to take on risk amid concern monetary tightening by Federal Reserve will stifle growth. But that changed in late trading as buyers emerged across the equity market, with 10 of the 11 sectors in the S&P advancing and the Russell 2000 of smallcaps climbing more than 1.5 per cent.

“It does seem that the odds of a soft landing are reasonably good but it’s tough to manage,” Anthony Crescenzi, market strategist and portfolio manager at Pacific Investment Management Co., said on Bloomberg TV. “Navigating it into that narrow runway is challenging. The price of oil rising of course, will reduce aggregate demand, perhaps. And that will likely help bring it into that zone. But lots of other things have to happen.”

Ahead of US consumer price data later this week, uncertainty about the outlook has led to a back and forth between stocks and bonds, which saw equities rally as 10-year yields held below 3 per cent.

“The yield on the 10-year note fell back below 3 per cent, so it seems like the stock market is very focused on the Treasury market this week,” said Matt Maley, chief market strategist for Miller Tabak + Co. “I’m not so sure that the 3 per cent level is as important as the stock market does this week, but with no Fed speak this week and the CPI number not due out until Friday, we could see stocks whip around in both directions for a few days.”

The inflation reading for May due Friday may help traders discern the Fed’s rate path and whether it will continue to hike in 50-basis point increments. Strong hiring data last week provided some justification for an aggressive approach.

Wall Street weighs in on the growth debate

• “Much of the mispricing we see is in the bond market right now -- the 10-year Treasury yield just keeps going up, even though the economy’s slowing,” Matt Miskin, co-chief investment strategist at John Hancock Investment Management, said in an interview. “Eventually it’s going to be an anchor of slower growth that pulls down yields. And that’s actually where we’re seeing the best opportunity to kind of exploit.”
• Fed Chair Jerome “Powell faces a tough challenge bringing inflation under control,” wrote Evercore ISI’s Krishna Guha. “We will likely see this again this week with CPI data that shows another boost to headline inflation from energy prices while elevated shelter costs and a surge in travel-related services inflation significantly offset welcome moderation in goods inflation that is being slowed down by ongoing supply dislocations in Europe and China.”
• “We believe the Fed will manage to reduce inflation while avoiding a recession, but we continue to monitor the data to see if employment, credit conditions, production, sentiment and income remain consistent with a continued economic expansion,” Gargi Chaudhuri, head of iShares investment strategy for the Americas at BlackRock, wrote in a note.

Earlier, the Reserve Bank of Australia blindsided the market with an outsized hike to combat rising costs. The RBA responded to price pressures with its biggest rate increase in 22 years -- predicted by just three of 29 economists -- and indicated it remained committed to “doing what is necessary” to rein in inflationary pressures. 

The European Central Bank on Thursday is set to end trillions of euros of asset purchases and cement a path to exiting eight years of negative interest rates.

Key events to watch this week:

• Reserve Bank of India rate decision Wednesday
• OECD Economic Outlook, a twice-yearly analysis of major global economic trends and prospects for the next two years. Wednesday
• European Central Bank rate decision, Christine Lagarde briefing, Thursday
• China trade, new yuan loans, money supply, aggregate financing. Thursday
• US CPI, University of Michigan consumer sentiment Friday
• China CPI, PPI Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.9 per cent as of 4:01 p.m. New York time
• The Nasdaq 100 rose 0.9 per cent
• The Dow Jones Industrial Average rose 0.8 per cent
• The MSCI World index rose 0.4 per cent

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.1 per cent to US$1.0709
• The British pound rose 0.5 per cent to US$1.2596
• The Japanese yen fell 0.6 per cent to 132.63 per dollar

Bonds

• The yield on 10-year Treasuries declined six basis points to 2.98 per cent
• Germany’s 10-year yield declined three basis points to 1.29 per cent
• Britain’s 10-year yield declined three basis points to 2.21 per cent

Commodities

• West Texas Intermediate crude rose 1.3 per cent to US$120.03 a barrel
• Gold futures rose 0.7 per cent to US$1,856 an ounce