Wall Street gains on tech buying as investors await inflation data

Wall Street benchmarks closed higher on Tuesday, recouping some of the previous session's losses as investors bought back into tech stocks as investors turned their attention to upcoming inflation data and the start of the third-quarter earnings season.

All three major indexes sold off on Monday, falling about 1% each as a surge in Treasury yields, escalating tensions in the Middle East and a reassessment of U.S. interest rate expectations weighed on them.

However, Treasury yields fell slightly on Tuesday, meaning investors were attracted to high-growth stocks that benefit from lower debt costs to fuel their growth, such as technology companies.

The information technology index led gains among S&P 500 sectors, rising 2.1%.

Palantir Technologies (NYSE:PLTR) and Palo Alto Networks (NASDAQ:PANW) rose 6.6% and 5.1%, respectively, helping to boost the index.

Heavyweight tech stocks also performed strongly, pushing the Nasdaq and S&P 500 back above last week's closing levels, although the latter's gains were small.

Nvidia (NASDAQ:NVDA), the leader of the so-called Big Seven tech stocks, rose 4.1%, its biggest one-day percentage gain in a month. Apple (NASDAQ:AAPL), Tesla (NASDAQ:TSLA) and Meta Platforms (NASDAQ:META) also rose, with gains ranging from 1.4% to 1.8%.

On Tuesday, the S&P 500 rose 55.19 points, or 0.97%, to 5,751.13, while the Nasdaq Composite added 259.01 points, or 1.45%, to 18,182.92. The Dow Jones Industrial Average rose 126.13 points, or 0.30%, to 42,080.37.

While a weakening rise in Treasury yields boosted tech stocks, it is still interest rate policy that is guiding traders and the U.S. stock market.

Investors have been watching the Federal Reserve and how it plans to implement its long-expected rate cuts all year, with each new set of economic data being studied for how it affects the central bank's thinking.

Data released last week, including Friday's stronger-than-expected jobs report, prompted investors to trim their rate cut bets slightly, though they are more inclined to a 25 basis point cut than a 50 basis point cut at the next Fed meeting in November.

Traders have currently priced in a nearly 89% chance of a 25 basis point cut in November, according to the CME's FedWatch.

The market is now awaiting consumer price index data due on Thursday as the next indicator of where interest rates are headed.

"I do think the labor market report (on Friday) and the CPI report combined are the two main topics for the Fed's next meeting," said Jason Pride, head of investment strategy and research at Glenmede.

If the CPI data is close to expectations, it would point to a 25 basis point rate cut in November, he added.

Most S&P sectors rose, but two ended in the red. One was the materials sector, which fell 0.4% as metals prices fell on fading optimism about Chinese stimulus.

Shares of Chinese companies listed in the U.S. also fell, tracking losses at home. Alibaba Group (NYSE:BABA), JD.com (NASDAQ:JD) and Pinduoduo Holdings fell between 5.4% and 7.5%.

The energy sector, however, fell the most, falling 2.6%, its biggest one-day drop since Aug. 20, as oil prices retreated after rising on Monday.

Third-quarter earnings are also in focus, with major banks scheduled to report on Friday. According to estimates from the London Stock Exchange, the expected earnings growth rate for the S&P 500 Index is 5%.

Volume on U.S. exchanges was 11.57 billion shares, compared with the full-day average of 12.1 billion shares over the past 20 trading days.

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