Market Snapshot: Dow closes 300 points higher, but tech-related stocks lead the rally on Wall Street as bond yields stabilize

Read: The stock split from Google’s parent may spark a wave, Bank of America analysts say

And: This fund sold out of Facebook’s parent and PayPal before their earnings disasters. Here’s what it bought instead.

What drove markets?

Investors on Wednesday enjoyed a breather from a recent bond selloff. The yield on the 10-yearTreasury note TMUBMUSD10Y, 1.947% fell 2.6 basis points to 1.928% after reaching 1.954% on Tuesday, its highest since 2019.

Gains were the sharpest for the S&P 500’s technology and communications sectors, up 2.3% and 2.5%, respectively, with shares of Meta Platforms FB, +5.37% closing 5.4% higher to halt a 4-day losing streak.

But investors were still keeping an eye on the key 2% level on the 10-year Treasury, especially as important inflation data looms for Thursday. Annual consumer price inflation is expected to rise to 7.2% for January, after reaching a 40-year high of 7% in December.

Read: ‘This is not 1980’: What investors are watching as next U.S. inflation reading looms

“Today we are primarily up with somewhat of an easing off in the bond selloff,” said Kent Engelke, chief economic strategist at Capitol Securities Management, about stocks edging higher, in a phone interview.

“I do think the CPI [reading] is going to be strong, but I also think it’s discounted by the market,” he said, adding that “all but the worst is already factored into the bond market” in the intermediate term.

See: Will Thursday’s inflation data kill the stock-market bounce? Here’s what investors want to see

Some on Wall Street have forecast seven rate hikes this year by the Federal Reserve as it seeks to quell inflation, but Engelke said such views likely are “overshot” and sees only three to four increases as likely.

The January consumer-price index report is due Thursday morning, with economists surveyed by The Wall Street Journal forecasting a 0.4% monthly rise and a year-over-year increase of 7.2%, after a nearly 40-year high of 7% in December.

Economic Preview: High inflation has jacked up the cost of food, gas, cars and rent – and there’s little relief in sight

Persistently high inflation has prompted the Fed to signal a much more aggressive stance, with interest rates expected to rise beginning at the central bank’s next policy meeting in March and a reduction in the size of its balance sheet expected to follow. Investors have penciled in an aggressive series of rate increases, which has weighed particularly hard on tech and other growth stocks in the new year.

“You have the potential for a walloping effect,” said Eric Schiffer, CEO of the Patriarch Organization, a private-equity firm, of the mix of expected higher rates and a smaller Fed balance sheet.

“They are trying to land the plane in a way that doesn’t create a whole new set of giant problems,” he said by phone. “I think it will be painfully volatile for the next four to five months.”

Atlanta Federal Reserve Bank President Raphael Bostic, in a television interview, said he expects the Fed to deliver three, quarter-point rate increases in 2022, while “leaning” toward the possibility of a fourth. He also said he would like to see the central bank significantly reduce the size of its balance sheet. Bostic isn’t a voting member this year of the Fed’s policy-setting Federal Open Market Committee.

Cleveland Fed President Loretta Mester, who is a voting member, said on Wednesday that she doesn’t see a “compelling case” for a 50-basis-point hike in March, but said that if inflation fails to moderate later this year the Fed might need to raise interest rates at a faster pace.

Which stocks were in focus?

Shares of Chipotle Mexican Grill Inc. CMG, +10.16% rose 10.2% after the fast-food chain more than doubled its profit to a record high in 2021, and spoke of expansion plans.
CVS Health Corp. CVS, -5.45% stock fell 5.5% after profit and earnings for the health services and drugstore operator beat expectations, though its full-year outlook was mixed.
Mandiant Inc. MNDT, +7.15% shares rose 7.2% after the cybersecurity software and services company reported forecast-beating results. Shares climbed during Tuesday’s regular session following a report that Microsoft Corp. MSFT, +2.18% was in talks to buy the company.
Lyft Inc. LYFT, +6.80% shares rose 6.8% after the ride-share operator met its goal of full-year positive Ebitda and spoke of a “solid” fourth quarter, but offered a cautious forecast.

How did other assets perform?

The ICE U.S. Dollar Index  DXY, -0.10%,  a measure of the currency against a basket of six major rivals, fell 0.1%.
West Texas Intermediate crude for March delivery  CL.1, +0.79% CLH22, +0.79% rose 0.3% to settle at $89.66 a barrel. Gold futures for April delivery  GC00, +0.30% GCJ22, +0.30% rose 0.5% to settle at $1,836.60, a fourth straight day of gains.
Bitcoin  BTCUSD, +0.75% rose 1% to trade near $44,765.
The Stoxx 600 Europe SXXP, +1.72% rose 1.7%, while the FTSE 100  UKX, +1.01% gained 1%.
The Shanghai Composite  SHCOMP, +0.79%  rose 0.7%, while the Hang Seng Index  HSI00, -0.54%  jumped 2% and Japan’s Nikkei 225 NIK, +1.08% rose 1%.

Barbara Kollmeyer contributed reporting