The S&P 500 and Nasdaq experienced a rally on mostly positive earnings, ending their 3-day losing streak.

On Wednesday, stocks rose as the corporate earnings season began with mostly favorable outcomes, and traders disregarded the increasing inflation figures.

The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all experienced significant gains on Wednesday, with the Dow rising 1.01%, the S&P 500 gaining 1.12%, and the Nasdaq Composite rallying 2.03%. These gains came after the S&P 500 and Nasdaq Composite both posted their third straight losing session on Tuesday due to March's CPI showing the highest inflation since 1981.

As corporate earnings become increasingly important to investors, they closely monitor for indications of how companies are managing inflationary pressures. On Wednesday, stocks traded higher due to better-than-expected quarterly results, with Delta receiving a boost after announcing it expects to achieve profitability this quarter.

According to Scott Ladner, chief investment officer at Horizon Investments, the upcoming earnings season may be more significant than usual. Ladner explained that earnings have not been as important in the past due to the macro-based market, but with central banks becoming increasingly hawkish, the market is shifting towards a micro-based world.

Delta's higher forecast led to a surge in other travel stocks, with Delta's stock rising 10.6%, United Airlines jumping 7.5%, Expedia rallying about 4.9%, and Royal Caribbean gaining 5.4%. Additionally, Marriott surged past 7.5%.

Nearly 3.3%, 3.2%, and 2.8% were the gains in chip stocks.

JPMorgan Chase's shares dropped 3.2% after the bank reported a $524 million loss due to market dislocations resulting from sanctions against Russia. Despite this, JPMorgan's first-quarter profits fell by 42%. However, the bank's revenue for the period was slightly higher than anticipated by analysts, at $31.59 billion.

Jamie Dimon, CEO of the bank, cautioned that the bank was increasing its credit reserves due to the "increased likelihood of negative economic outcomes" in the United States.

Despite the increase in commodity costs, the ongoing war in Ukraine, and the lingering pandemic, analysts have adjusted their expectations for the season. According to FactSet, earnings for S&P 500 companies are predicted to grow by only 4.5% in the period, which is the lowest growth rate since the fourth quarter of 2020.

Chris Senyek, chief investment strategist at Wolfe Research, wrote that he believes 1Q results will be "OK" relative to expectations, but management guidance will be more negative than positive again. As a result, he doesn't expect earnings trends from 1Q reports to boost equity markets. Instead, he believes high inflation, Fed tightening, and rising recession risks will continue to be the main factors influencing market returns and sector rotation.

Following an announcement from Walmart, PayPal shares dropped nearly 2.9%.

Another data set showing a sharp increase in prices amid rising hopes that inflationary pressures may be peaking was also overlooked by traders.

In March, producer prices, which represent wholesale costs that may result in higher retail prices, experienced a record 11.2% increase on an annual basis. This monthly gain of 1.4% surpassed the 1.1% estimate from economists surveyed by Dow Jones.

The yield on the 10-year Treasury bond dropped to 2.7% after the release of the producer prices report. This week, the yield reached a three-year high of 2.82% before declining.

On Tuesday, the Labor Department released a report showing an 8.5% increase in consumer prices in March. This followed the release of the producer prices report, which also showed an increase in March. The report fueled concerns about tighter monetary policy from the Federal Reserve, even as core CPI excluding food and energy costs rose only 0.3%, slightly below expectations. Some on Wall Street saw this as a sign that inflation may be nearing a peak.

Jack Ablin, founding partner of Cresset Wealth, stated that the market is responding similarly to yesterday's response to the consumer price index. Although the PPI at 11 handle is astonishing, he believes the peak inflation narrative still holds true.