Market Rally Faces Inflation Jitters as Earnings Loom

The S&P 500 saw minor gains while the Nasdaq dipped as investors monitored inflation data and anticipated earnings reports. Markets fluctuated, initially buoyed by a lower-than-expected producer price index, but remain cautious amid high Treasury yields and uncertainties about future Federal Reserve policies.

In a roller-coaster session on Tuesday, the S&P 500 edged higher while the Nasdaq drifted downward as investors mulled over inflation data and prepared for upcoming quarterly earnings reports. Equities experienced a seesaw day, with a Labor Department report showing the producer price index rose less than anticipated in December, yet this failed to significantly alter expectations regarding the Federal Reserve's monetary policy direction.

Anticipation builds as investors look towards Wednesday's consumer price index reading, which could further influence inflation expectations and the Fed's decisions. "There's a level of uncertainty about where interest rates and the Fed are going," said Chris Fasciano, chief market strategist at Commonwealth Financial Network. This sentiment comes as the Dow Jones saw gains, while the Nasdaq showed declines.

The market is eyeing the Fed's potential rate cuts by the end of 2025, with U.S. Treasury yields at elevated levels. Investors also await big banks' quarterly earnings starting Wednesday, expecting robust profits that could impact stock valuations. However, healthcare shares stumbled, highlighting underlying market worries. Despite mixed signals, advancing issues overshadowed decliners on major exchanges.

(With inputs from agencies.)