Stocks gain, yields dip after U.S. data; Fed eyed

By Chuck Mikolajczak

NEW YORK (Reuters) - A gauge of global stocks advanced on Tuesday as it closed out a strong month while U.S. Treasury yields fell as investors assessed economic data and earnings reports ahead of a run of central bank policy announcements.

On Wall Street, U.S. stocks rallied and closed higher, reversing declines in equity futures after data showed labor cost growth in the fourth quarter was the smallest in a year, at 1.0%, even in a tight labor market. Other data showed consumer confidence eased in January, as inflation expectations for the next 12 months climbed to 6.8% from 6.6% last month.

The Federal Reserve is widely expected to raise interest rates by 25 basis points (bps) at the conclusion of its two-day policy meeting on Wednesday. Investors will closely monitor comments from Fed Chair Jerome Powell following the announcement for clues on the path of monetary policy.

"Especially ahead of a Fed press conference, something like this equity market rally is kind of explicitly against what they want, and they have been pretty clear the market rallying on what they expect the Fed to do is counter-productive," said Ross Mayfield, investment strategist at Baird in Louisville, Kentucky.

"We do feel like we’ve gotten a bit ahead of ourselves here even if we are closer to the end of the Fed hiking cycle than the beginning."

The Dow Jones Industrial Average rose 368.95 points, or 1.09%, to 34,086.04, the S&P 500 gained 58.83 points, or 1.46%, to 4,076.6, and the Nasdaq Composite added 190.74 points, or 1.67%, to 11,584.55.

The S&P 500 closed up 6.2% for the month, its first January gain since 2019, while the Nasdaq surged 10.7% for its biggest percentage gain for the month of January since 2001.

Interest rate announcements from the Bank of England and the European Central Bank are scheduled for Thursday, with both seen as likely to hike rates by 50 basis points.

Markets will also grapple with a host of U.S. economic data this week, culminating in Friday's payrolls report for January. Investors see signs of weakening in the labor market as a key factor in bringing down high inflation. Other data this week include gauges of the manufacturing and services sectors.

In addition, more than 100 S&P 500 companies, including market heavyweights Apple Inc (NASDAQ:AAPL) , Amazon.com Inc (NASDAQ:AMZN) and Google parent Alphabet (NASDAQ:GOOGL), are scheduled to report results this week.

Despite the strong equity rally, Caterpillar (NYSE:CAT) and McDonald's (NYSE:MCD) both lost ground on Tuesday following their quarterly results. However, Exxon Mobil (NYSE:XOM) rose after posting a $56 billion net profit for 2022.

European shares retreated ahead of the central bank meetings to end the month on a down note, but still notched their biggest January percentage gain since 2015. Economic data for the euro zone showed slight growth for the fourth quarter, but further weakness is expected this year.

The pan-European STOXX 600 index lost 0.26%, and MSCI's gauge of stocks across the globe gained 0.72%. MSCI's index was on pace for its biggest January percentage gain since 2019.

Benchmark U.S. 10-year notes were down 3.5 basis points to 3.516% in the wake of the data, after hitting a two-week high of 3.574% on Monday.

In currencies, the U.S. dollar index, poised for a fourth month of declines, fell 0.176%, with the euro up 0.22% to $1.0868.

Oil prices recovered from earlier lows, as U.S. crude settled up 1.2% at $78.87 per barrel and Brent settled at $84.49, down 0.48% on the day.