What’s driving markets?

Stocks climbed higher Tuesday afternoon as investors parsed fresh data on retail sales and industrial production.

Retail sales jumped 1.7% in October, the government said, surpassing forecasts for a 1.5% rise and logging the biggest gain since March when households received billions in federal stimulus money. Excluding autos, sales rose 1.4%.

“It was a strong report,” even with the rise in inflation during the pandemic, said Matt Stucky, a senior portfolio manager for equities at Northwestern Mutual Wealth Management Co., in a phone interview Tuesday.  “In our view, what’s driving that is a very strong recovery from a job and wage perspective,” he said, “along with high levels of excess savings that are still out there on consumer balance sheets.”

Consumer sentiment may be weighed down by concerns over inflation, including higher prices at the gas pump and grocery stores, but that hasn’t stopped people from spending, according to Scott Wren, senior global market strategist at Wells Fargo Investment Institute. Individual investors are starting to “jump into the market,” chasing the rise in U.S. stocks even as they’re still “sitting on a lot of cash,” Wren told MarketWatch by phone.

But surging inflation was seen taking some of the shine off the retail sales figures.

“On the surface, the outsized gain in retail sales in October probably looks better than in reality it is,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “Higher prices account for a good chunk of that increase, and the jump start on holiday shopping is pulling forward some portion of the seasonal end of year spending surge.”

Meanwhile, industrial production, which includes factory, mining and utility output, increased at a seasonally adjusted 1.6% in October compared with the previous month, according to the Federal Reserve. Economists polled by The Wall Street Journal expected a 0.8% increase.

“We’re back to pre-pandemic levels for industrial production,” said Stucky, with a lot more needed in the coming quarters to “replenish” global supply chains. “There just hasn’t been enough industrial production really to catch up to a really strong demand environment at the consumer level,” he said.

In other economic data, the National Association of Home Builders said its monthly confidence index rose 3 points to a reading of 83 in November, its highest since May.

Investors remain worried about inflation.

“Uncertainty about the persistence of higher inflation continues to dog investor sentiment amid ongoing speculation about the timing of interest rate hikes by the world’s major central banks,” said Raffi Boyadjian, lead investment analyst at XM. “The stronger-than-expected jump in the New York Fed’s manufacturing gauge on Monday was the latest data point to highlight long-lasting supply disruptions and rising costs, giving Treasury yields a nudge up.”

Results from major retailers were rolling in as the reporting season for third-quarter earnings hits the final stretch, with investors on the lookout for any signs of higher shipping or labor costs eroding companies’ profit margins.

“Strong results” from Home Depot Inc.
HD,
+5.73%
and Walmart Inc.
WMT,
-2.55%
are “just further reflection of the strength of the consumer,” said Stucky, adding that “larger companies are better able to deal with some of these supply chain pressures” seen in the pandemic.

Which companies are in focus?

Home Depot Inc.
HD,
+5.73%
shares rose 5.6% after the home improvement retailer reported fiscal third-quarter profit, net sales and same-store sales that beat expectations.

Shares of Walmart Inc.
WMT,
-2.55%
fell 2.2% after the retail giant raised its full-year earnings guidance for a third consecutive quarter.

Shares of Peloton Interactive Inc.
PTON,
+15.50%
jumped 13.3% after the home fitness company said it launched a public offering of $1 billion worth of common stock.

How are other markets faring?

The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.641%
rose about one basis point to 1.632%. Yields and debt prices move in opposite directions.

The ICE U.S. Dollar Index
DXY,
+0.56%,
a measure of the currency against a basket of six major rivals, continued to push higher, rising 0.5%.

Oil futures ended lower, with the U.S. benchmark
CL00,
-0.15%
slipping nearly 0.2% to settle at $80.76 a barrel. Gold futures
GC00,
-0.80%
fell 0.7% to settle at $1,854.10 an ounce.

The Stoxx Europe 600
SXXP,
+0.17%
rose 0.2% in a fresh record close, while London’s FTSE 100
UKX,
-0.34%
declined 0.3%.

The Shanghai Composite
SHCOMP,
-0.33%
fell 0.3%, while the Hang Seng Index
HSI,
+1.27%
rose 1.3% and Japan’s Nikkei 225
NIK,
+0.11%
edged up 0.1%.

—Steve Goldstein contributed to this report.