U.S. equities bounced back on Monday, with major indexes advancing even as fresh inflation data and Federal Reserve comments pointed to a prolonged period of higher interest rates.
The S&P 500 rose 1%, led by strength in technology shares, while the Nasdaq and small-cap Russell indexes gained close to 1.5%, according to Danske Bank Research. In Europe and the Nordics, markets that were down about 1% earlier in the session ended the day broadly flat.
Software surge drives market gains
U.S. software names were the standout performers, climbing 5.4% on the day. Oracle jumped 13%, helped by renewed optimism ahead of the first-quarter earnings season.
Consensus forecasts now point to a 12% year-on-year earnings increase for S&P 500 companies in the first quarter, with revenue expected to grow 9%. Technology is projected to deliver roughly 40% earnings growth, far outpacing the broader market.
Valuations shift in favor of technology
Danske Bank noted that software valuations have moved closer to the overall market average after prior froth was priced out. On a global basis, the technology sector, including hardware, now trades at more than a 15% discount to global industrials.
That discount stands in contrast to earnings expectations: technology is forecast to deliver around 40% earnings growth in the first quarter, while industrials are expected to show little or no improvement.
Technology earnings estimates for 2026 have been raised by 15% so far this year, whereas industrials have not seen any upgrades. Danske’s analysts said the mix of faster earnings growth and cheaper relative valuations has sharpened market focus on the sector.
Equities look past fed caution
The rebound in risk assets comes despite the Federal Reserve’s decision last week to leave the federal funds rate unchanged and signal that the economic backdrop still demands a cautious stance.
The market’s resilience suggests traders are putting more emphasis on corporate earnings power, particularly in technology, than on the near-term path of monetary policy.
Inflation data clouds rate-cut outlook
Fresh figures released Tuesday showed the March Consumer Price Index rising 3.1% year-on-year, slightly above the median economist forecast. The data underline persistent inflation pressures and complicate the outlook for any rate cuts in the second quarter.
The higher-than-expected reading reinforces the likelihood that borrowing costs remain elevated for longer than many had anticipated at the start of the year.
Fed signals policy to stay restrictive
Speaking in Cleveland, Federal Reserve Bank of Cleveland President Loretta Mester warned that the path back to the Fed’s 2% inflation target is “not yet guaranteed,” and indicated that policy will need to remain restrictive for some time.
Her remarks added to a modest strengthening in the U.S. dollar. The dollar index rose 0.2% in early trading to 105.45.
Markets stay sensitive to data and guidance
The current backdrop suggests assets that are sensitive to liquidity conditions and long-term interest rate expectations will remain highly reactive to incoming inflation releases and central bank communication.
At the same time, the strength in pockets of the equity market, particularly software, points to a selective appetite for risk. Areas with strong and credible growth stories are attracting capital even as macroeconomic headwinds persist.
Volatility, treasuries and the next catalysts
Market participants are watching the CBOE Volatility Index, which has slipped below 14 for the first time in three weeks, as a gauge of risk appetite and complacency.
Attention is also turning to this week’s 10-year U.S. Treasury note auction for signals on demand for government debt. The 10-year yield stands at 4.42%, having moved higher since the release of the latest inflation report.
Focus turns to tech earnings test
The durability of technology’s leadership will be tested over the next two weeks as mega-cap firms begin reporting first-quarter results.
Stronger-than-expected numbers would reinforce the current narrative of robust earnings growth supporting higher equity prices in tech, despite tighter policy. Any notable disappointments, however, could quickly trigger a reassessment of sector leadership and capital allocation across the market.
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