By Will Horner 

U.S. stock indexes edged higher at the opening Tuesday, suggesting that stocks are poised for a muted rebound with technology shares likely to outperform.

The Dow Jones Industrial Average rose 0.1%, while the broad S&P 500 was up 0.1% and the tech-heavy Nasdaq Composite rose 0.3%.

Stocks have been choppy in recent trading sessions as concerns about a spike in inflation weighed on sentiment. Investors are contending with a raft of unknowns, such as whether rising prices will prove temporary or more persistent, and whether the Federal Reserve will act by raising interest rates sooner than planned.

"That always was the key risk: central banks taking away the liquidity punch bowl before the party has ended," said Brian O'Reilly, head of market strategy for Mediolanum International Funds.

Inflation ranging between 2% and 4% could be the "sweet spot" for stocks, said Mr. O'Reilly. The economic rebound that is fueling inflation is likely to continue benefiting stocks that are sensitive to the reopening, such as banks, as well as travel and leisure companies. But companies with strong balance sheets and an ability to raise prices, such as pharmaceutical companies and makers of common household goods, should also do well, he said.

"Inflation isn't necessarily bad for equities, but there will be winners and losers in terms of [which ones] are better at passing on that inflation to the customer," said Mr. O'Reilly.

While tech stocks have taken the biggest hit from rising inflation concerns, some investors see the recent retreat as an opportunity to buy fast-growing companies.

"Within tech, there are still some companies that look very cheap," said Jane Shoemake, client portfolio manager at Janus Henderson Investors. "If you believe in the longer-term trends supporting these companies, you should be buying."

Ahead of the market opening, AT&T dropped over 6%, extending its losses following a deal with Discovery to merge their media assets into a new, publicly traded business.

Macy's gained more than 4% premarket after reporting first-quarter earnings that beat expectations. Walmart advanced nearly 4% after the retailer lifted its guidance for the year.

The yield on the 10-year Treasury note was little changed from 1.639% Monday. Bond yields rise as prices fall.

Brent crude rose 0.6% to $69.90 a barrel. The global oil benchmark earlier climbed above $70 a barrel for the second time since the onset of the pandemic amid hopes for fuel demand.

Overseas, the Stoxx Europe 600 edged up 0.3%. The U.K.'s FTSE 100 gained 0.3% after data showed the U.K.'s unemployment rate edged lower in April.

Most major Asian indexes closed higher. Japan's Nikkei 225 gained 2.1%, while in Hong Kong, the Hang Seng Index rose 1.4%. Taiwan's Taiex jumped 5.2%. In mainland China, the Shanghai Composite Index edged up 0.3%.

Write to Will Horner at William.Horner@wsj.com

 

(END) Dow Jones Newswires

May 18, 2021 09:47 ET (13:47 GMT)

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