Stocks ended higher Tuesday, while Treasury bond yields and the dollar eased from recent multi-week highs, as investors peeled away from risk markets amid concern for the impact of central bank tightening on global rate markets.
The Dow Jones Industrial Average finished up 264 points, or 0.80%, to 33,179, while the S&P 500 gained 0.95%. The Nasdaq ended up 0.94%.
Stocks had slumped at the start of the session following a near-term warning on profit margins from Target Corp. (TGT), which said surging fuel and transport costs would continue to erode its bottom line heading into the summer months.
Shares ended down 2.3% to $156.05.
That caution came just hours after the Reserve Bank of Australia spooked markets with its second rate hike in as many month -- and the biggest single-meeting move in 22 years -- when its lifted its base rate by 50 basis points to 0.85% and said more increases were likely in the near future.
The bigger-than-expected hike pushed the Japanese yen to a fresh 20-year low of 132.72 against the U.S. dollar, while adding further fuel to bond yields in key markets around the world, all of which are seeing a surge in headline inflation powered by higher energy prices and stubbornly high core rates linked to supply chain disruptions.
With the European Central Bank set to meet later this week, and the Fed's June policy meeting just around the corner, traders are now looking for hawkish surprises and paring bets on growth stocks and risk markets.
The CME Group's FedWatch tool is pricing in a 97.2% chance of a 50 basis point rate hike next week, while also placing a 12.1% probability on a 75 basis point move when the Fed meets next in July.
The Atlanta Fed's GDPNow forecasting tool pegs current U.S. growth at 0.9%, a tally that would indicate only a modest rebound from last quarter's contraction and suggest that a solid economy underpins the current market, and indicates at least some confidence that the Fed can deliver the 'soft landing' it's aiming for.
European stocks were weaker across the board, with the region-wide Stoxx 600 down 0.2% by the close of trading in Frankfurt, following on from a 1.1% decline for the MSCI ex-Japan benchmark in Asia.
However, a pullback in benchmark 10-year Treasury bond yields, which eased to 2.985%, helped stocks turn higher, while the dollar index fell 0.10% against a basket of six global currencies to 102.33.
Kohl's Corp. (KSS), was also in focus as the group entered exclusive talks with the Franchise Group (FRG) over a possible $8 billion takeover. Gains were limited by Target's margin warning, but the shares finished 9.6% higher to $45.63 each.
Twitter (TWTR) shares were also active, rising 1.4% as investors continue to discount the chances of Tesla (TSLA) CEO Elon Musk completing his $44 billion takeover bid for the micro-blogging website.
Bitcoin prices fell back below the $30,000 mark, as surging interest rates reduced demand for the world's biggest cryptocurrency.
Bitcoin prices were last seen 3.1% higher at $31,164.53, with Coindesk reporting that over $200 million in positions have been liquidated over the past seven days.
