US stocks continued to rally on Tuesday as strong corporate earnings helped allay fears of higher inflation. To be precise, the S&P 500 traded 0.7% higher, when the results of Travelers and Johnson & Johnson beat estimates. Procter & Gamble, on the other hand, saw a drop amid higher commodity and shipping costs. Crypto stocks were also higher as Bitcoin climbed to a record high amid the launch of the first US Bitcoin ETF.
The gains brought the benchmark index within 1% of all-time highs, while dollar declined as traders raised bets that central banks around the world will raise interest rates earlier than the Federal Reserve. Meanwhile, global bond yields were mixed, with the yield on 10-year US Treasuries up by 1.62%.
"Another week of upbeat results could be the boost that bulls are after to recapture those record levels," said Fiona Cincotta, senior financial markets analyst at City Index.
Investors are now watching the reporting season closely to see how higher energy and raw material costs affect margins.
Lauren Goodwin, economist and portfolio strategist at New York Life Investments, said: "This earnings season could be highly important for investors, as inflation, labor, supply, and currency risks settle in. We will be particularly attuned to companies' guidance on the path ahead and whether higher costs could reduce corporate margins."
As such, many expect Fed officials to try to calm the market this week ahead of plans to cut bond purchases.
Managing director and head of US rates strategy at Societe Generale Subadra Rajappa said: "They're probably going to be very careful and cautious on rate hikes because of the fact that they just don't have enough information on the inflation front. That is why I think today there was a slight adjustment in the two-year part of the curve."
Other important events for this week are:
- earnings reports from AT&T, Barclays, Netflix and Tesla;
- EIA report on crude oil (Wednesday);
- report on real estate prices and basic loan rates in China (Wednesday);
- Conference Board data on leading US indicators, report on US secondary home sales, data on US jobless claims (Thursday);
- panel discussion on policy issues (Friday).
