Smaller company stocks held up better than the broader market. The Russell 2000 rose 6.61 points, or 0.3 per cent, to 1,986.94.

Stocks in recent days have been trading in the opposite direction of Treasury yields, which have climbed to their highest levels since well before the pandemic. Yields jumped as investors brace for the Federal Reserve to hike short-term rates at a faster pace than typical and to aggressively pare its trove of bonds, whose buildup helped keep longer-term rates low.

But Treasury yields pulled back on Tuesday following the inflation report. The 10-year yield slid to 2.72 per cent from 2.77 per cent late Monday. It was as high as 2.83 per cent overnight, before the inflation report’s release. The 10-year yield nevertheless remains well above the 1.51 per cent level where it began the year.

Stocks elsewhere around the world closed lower or mixed, as unease continues to hang over markets about the war in Ukraine, Chinese efforts to contain COVID outbreaks and where inflation and interest rates are heading.

The price of US crude oil climbed 6.7 per cent to settle at $US100.60, keeping the pressure on high inflation. Brent crude, the international standard, rose 6.3 per cent to settle at $US104.64.

Higher interest rates from the Federal Reserve would slow the economy, which would hopefully knock down high inflation. Consumer prices were 8.5 per cent higher in March than a year earlier, accelerating from February’s 7.9 per cent inflation rate and the highest since 1981. To bring it down, the Fed revealed in the minutes from its latest meeting that it’s prepared to hike short-term rates by half a percentage point, double the usual amount, at some upcoming meetings, something it hasn’t done since 2000.

The worry is the Federal Reserve may be so aggressive about hiking interest rates that it forces the economy into a recession.

Higher interest rates also put downward pressure on all kinds of investments, with those seen as the most expensive hardest hit. That’s because when investors are earning more in interest to own relatively safe bonds, they’re less willing to pay higher prices for riskier stocks. Technology and other high-growth stocks that have been some of the stock market’s biggest recent winners have been in the spotlight in particular.

On Tuesday, technology stocks were among the biggest drags on S&P 500, along with health care and financial companies. Microsoft fell 1.1 per cent, Pfizer lost 1.5 per cent and Wells Fargo slid 1.8 per cent.

Energy companies and retailers were among the sectors that notched gains. Marathon Oil rose 4.2 per cent and Ross Stores rose 2.5 per cent.

More swings may be in store for stocks as companies prepare to report their earnings for the first three months of the year. Delta Air Lines, JPMorgan Chase and other big-name companies will kick off the reporting season on Wednesday.

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A key focus for investors during the latest round of earnings will be any sign of consumers pulling back on spending and how companies reacted, said Jack Janasiewicz, portfolio manager and lead portfolio strategist at Natixis Investment Managers Solutions.

“It all boils down to their margins and how are companies deal with rising costs,” Janasiewicz said.

Earnings were able to stay at record levels through the end of last year as companies raised prices for their products and services enough to protect their profit margins. But the further acceleration of inflation may be straining that formula.

Used car dealership chain CarMax slumped 9.5 per cent after reporting disappointing earnings. The company said high prices for cars were discouraging buyers.

While they can swing sharply for many reasons in the short term, stock prices tend to track the path of corporate profits over the long term.

AP

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