S&P 500 rallies back above 4500 but remains within recent ranges as pre-US CPI nerves prevail

• S&P 500 rose back above 4500 on Tuesday but remains within recent ranges ahead of US CPI later this week.
• Any upside surprise could add further momentum to the recent rise in yields, potentially pressuring big tech/growth names.

The S&P 500 rose back above the 4500 level on Tuesday, up about 0.5% versus Monday’s close in the 4480s, though the index has remained well within the 4470-4540ish ranges that have prevailed since last Thursday. Market commentators cited underwhelming Q4 earnings results from Pfizer, whose year ahead forecast for vaccine and anti-viral pill sales disappointed, and pre-US Consumer Price Inflation data “jitters” as keeping equities locked within recent ranges.

Traders also noted further downside in Meta Platforms (Facebook) as weighing on broad market sentiment, with FB shares down another 1.0% to take losses since last week’s earnings to more than 30%. Billionaire investor Peter Thiel stepped down from the company's board, news which traders said weighed on the share price.

The Nasdaq 100 has seen similar trading conditions, undulating between the 14.5-14.8K levels for a fourth consecutive session. On Tuesday, the index trades about 0.9% higher around 14.7K. The Dow managed to push marginally above its last Friday/Monday ranges and is eyeing a retest of the 35.5K level, up about 0.8% on the day. The CBOE S&P 500 Volatility Index fell below the 22.00 level for the first time since last Wednesday.

Calm trading conditions reflect the fact that investors are nervous to place any big bets ahead of Thursday’s US inflation release, which has been billed as this week’s main event. The headline YoY rate should surpass 7.0% and the risk is that markets interpret this as increasing the likelihood that the Fed hikes rates by 50bps in March and embarks on more aggressive tightening throughout the duration of 2022.

Further Fed tightening bets could add further momentum to the move higher in long-term US bond yields, with the 10-year already nearing 2.0% for the first time since August 2019. This could weigh heavily on tech/growth names, much of whose valuation depends on expectations for future earnings growth rather than present earnings, thus leaving valuations vulnerable to a rise in opportunity cost (for which yields are a proxy).