Stocks rose as further signals that inflation is easing bolstered speculation on smaller Federal Reserve rate hikes.

Tech drove the rebound in equities, adding to gains that are putting the S&P 500 on track for its second-best January since the turn of the century, trailing only the 7.9% jump in 2019. As the earnings season rolled in, American Express Co. jumped on a bullish forecast, while Intel Corp. tumbled after predicting one of the worst quarters in its history.

The Fed's preferred inflation measures eased in December to the slowest annual pace in over a year and spending fell. Separate data from the University of Michigan showed U.S. inflation expectations continued to retreat in late January, helping boost consumer sentiment.

The central bank watches long-term views especially closely, as expectations can become self-fulfilling and lead to higher prices.

Former Treasury Secretary Lawrence Summers urged the Fed to refrain from signaling its next move after an expected hike next week because of the economy's highly uncertain outlook.

Hopes are high for the Fed deliver a 25 basis-point increase on Feb. 1, shifting away from last year's bigger moves, but expectations for end-2023 rate cuts are "a step too far," according to Erick Muller, head of product and investment strategy at Muzinich & Co.

"We will probably see the Fed say 'we are entering the final phase, but listen carefully guys: we will continue to raise rates,'" Muller said. "A lot of volatility in rates will depend on the path of inflation from here."

Corporate Highlights:

  • Chevron Corp. posted disappointing results just days after surprising investors with a mammoth $75 billion share-buyback program.
  • Colgate-Palmolive Co. sold fewer personal-care and household products than expected at the end of last year.
  • Goodyear Tire & Rubber Co. will eliminate about 500 jobs in response to weak demand and rising inflation.
  • Hasbro Inc., one of the world's largest toymakers, said it would cut 15% of its workforce, after a disappointing holiday shopping season.

U.S. equities have flown in the face of many dire signals this year, from recession fears to weak earnings. Yet a peek into the trading activity behind the benchmark suggests the bullish run lacks conviction.

Flows into the SPDR S&P 500 ETF Trust (ticker SPY) show that, while the fund is on pace to see net inflows in January after two straight months of investors taking assets out, the total amount of money coming in weekly has been steadily declining this month. Flows into two other major funds tracking the S&P 500 — the Vanguard S&P 500 ETF (VOO) and IShares Core S&P 500 ETF (IVV) — tell a similar story.

The S&P 500 has climbed about 6% this month, and if history is any guide, the gauge is also likely to be in the green on Dec. 31, as the direction in the first month — a gain or loss — has matched the annual result two-thirds of the time since 1973.

The positive-positive periods delivered a full-year average gain of 20%, while the negative-negative years saw a typical decline of 17%.

Rita Nazareth reports for Bloomberg News.

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