Sinéad Carew and Shashwat Chauhan
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By Sinéad Carew and Shashwat Chauhan
(Reuters) - The S&P 500 and the Nasdaq closed higher on Tuesday for a second straight day after softer-than-expected inflation numbers added to investor optimism from Monday when the U.S. and China announced a trade truce.
The Dow fell, however, with its biggest drag a 17.8% slide in shares of UnitedHealth after the insurance bellwether suspended its annual forecast and its CEO stepped down.
The S&P 500 closed with a year-to-date gain for the first time since late February after data showed that U.S. consumer prices rebounded moderately in April, with headline inflation increasing 0.2% last month compared with economist estimates for a 0.3% increase and a 0.1% drop in March.
The CPI climbed 2.3% in the 12 months through April, after advancing 2.4% in the 12-month period until March.
"The sustainability of the carry-through from yesterday is positive. There was nothing in CPI to throw it off," said Carol Schleif, chief market strategist at BMO Private Wealth in Minneapolis.
Schleif described Monday's improvement in U.S. and China trade relations as going "from iceberg to 80 degrees spring day overnight" and said the 90-day pause on tariffs came in time for retailers to import goods to build up stocks for back-to-school and year-end holiday shopping.
Monday's relief rally followed Washington and Beijing's agreement to dial back stringent reciprocal tariffs, signaling a joint effort to stave off a global economic downturn.
The U.S. will temporarily lower the extra tariffs it imposed on Chinese imports to 30% from 145% for three months, while Chinese duties on U.S. imports will fall to 10% from 125% in the same period.
After the tariff truce, multiple brokerages lowered their odds of a U.S. recession.
Traders leaned in to bets that the U.S. Federal Reserve would hold off on lowering interest rates until September, while still anticipating two 25-basis-point cuts by year-end.
After Tuesday's inflation reading and Monday's U.S.-China trade detente, R. Burns McKinney, portfolio manager at NFJ Investment Group in Dallas, said, "It does give the Fed the ability to focus on the labor side of this dual mandate in the coming meetings."
"If we don't see resurgent inflation and we get a little bit of certainty in trade policy between now and the end of the year, central bankers will resume their cutting cycle," said McKinney, "not because of economic weakness but because slowing inflation means the inflation-adjusted Fed fund rate is still restrictive, and there's room to lower."
