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Fresh signs of at least the potential of a resolution in Eastern Europe whetted risk appetites Tuesday, even as the ominous 2-10 yield curve came even closer to inverting.
During the latest round of talks with Ukraine today, Russian Deputy Defense Minister Alexander Fomin said his country's military would "drastically" remove its military presence from Kyiv. That triggered another day of buying from investors, who weren't deterred by a U.S. official's skeptical comment to news outlets that Russia's moves indicated "a redeployment, not a withdrawal."
Wall Street also wasn't put off by a potential inversion of the two- and 10-year Treasury rates – "potential" being the key word, as various data sources conflicted on whether the two-year's yield merely equaled the 10-year yield or surpassed it.
Even then, Lauren Goodwin, economist and portfolio strategist at New York Life Investments, warns against using a yield inversion as an egg timer.
"While curve inversion has historically been an important market signal of recession risk, it does not tell us much about when recession might likely occur," she says.
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Real estate investment trusts (REITs) including mall operator Simon Property Group (SPG, +4.8%) and Public Storage (PSA, +3.4%) enjoyed the biggest gains Tuesday, with the sector up 2.9% to lead the S&P 500 (+1.2% to 4,631). The Nasdaq Composite had an even better day, up 1.8% to 14,619, while the Dow Jones Industrial Average recorded a 1.0% gain to 35,294.
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Other news in the stock market today:
We'll find out March's jobs tally later this week, but another data point on Wall Street's watch list is the core Personal Consumer Expenditures (PCE) price index.
That report, due out Wednesday, represents the Federal Reserve's favored gauge of inflation – another critical factor in the market's direction from here.
"We believe it is important to point out the historical impact that inflation can have on equity market valuation," says John Lynch, chief investment officer for Comerica Wealth Management. "Specifically, high levels of inflation … have historically pressured the price-to-earnings (P/E) ratio for the S&P 500 Index. Historically, when the CPI approaches 8.0%, the average [trailing 12-month] P/E for the S&P 500 is ~12, which could bring the index to unspeakable levels."
Given that the S&P 500 currently trades at more than 26 times trailing earnings, that would be very bad news, indeed.
You can swat back at inflation via just about any investment type you like. Those looking to make concentrated bets against rising prices can consider these five stocks poised to push higher in an inflationary environment, while those who prefer a diversified approach might instead prefer these five mutual funds.
But some of the most interesting tools in the tool box are inflation-fighting exchange-traded funds (ETFs). Several of these ETFs simply happen to be positioned in areas of the market that do well as prices expand, but in some cases, an inflation-resistant portfolio is the explicit goal.
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