US Stock Market: Dow Jones, Nasdaq, S&P 500 jump ahead of Fed rate decision; all eyes on Jerome Powell's speech

US Stock Market: Major U.S. stock indexes closed over 1% higher on Tuesday as labor cost data encouraged investors about the Federal Reserve's aggressive approach to taming inflation a day ahead of the central bank's critical policy decision.

Investors also digested a full plate of earnings reports. Shares of Exxon Mobil Corp (XOM.N) and United Parcel Service Inc (UPS.N) rose following their respective results, while Caterpillar Inc (CAT.N) and McDonald's Corp (MCD.N) ended weaker after their results.

The S&P 500 tallied its first January increase since 2019, gaining 6.2%, while the tech-heavy Nasdaq jumped 10.7% for the month - its biggest January percentage rise since 2001.

U.S. labor costs increased at their slowest pace in a year in the fourth quarter as wage growth slowed, Labor Department data showed. The U.S. central bank on Wednesday is expected to hike the Fed funds rate by 25 basis points, following a 2022 in which the Fed aggressively boosted rates to control soaring inflation.

The labor cost data is "indicating that maybe what the Fed has done is working and ... we’re rounding the corner on interest rate hikes," said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

The Dow Jones Industrial Average (.DJI) rose 368.95 points, or 1.09%, to 34,086.04, the S&P 500 (.SPX) gained 58.83 points, or 1.46%, to 4,076.6 and the Nasdaq Composite (.IXIC) added 190.74 points, or 1.67%, to 11,584.55.

All 11 S&P 500 sectors ended in positive territory, led by materials (.SPLRCM) and consumer discretionary (.SPLRCD), both up over 2%.

Aside from the Fed's rate decision on Wednesday, Chair Jerome Powell's news conference will be scrutinized for whether the rate-hiking cycle may be coming to a close and for signs of how long rates could stay elevated.

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"Jerome Powell and team are probably looking at this easing of financial conditions that has happened over the last month, and we will see if they try to push back against it to any extent," said Mona Mahajan, senior investment strategist at Edward Jones. "I don’t think they would want markets to move up too far, too fast either."

In earnings news, Exxon Mobil shares rose 2.2% after the oil major posted a $56 billion net profit for 2022, setting not only a company record but a historic high for the Western oil industry.

United Parcel Service shares climbed 4.7% after its quarterly profit topped estimates, while General Motors Co (GM.N) shares jumped 8.3% after it forecast stronger-than-expected earnings for 2023.

Caterpillar shares sank 3.5% as the machinery maker's fourth-quarter earnings slid by 29%. McDonald's shares dropped 1.3% after the burger chain warned inflation will weigh on margins in 2023.

A busy week for markets will also include reports in coming days from Apple Inc (AAPL.O), Amazon.com Inc (AMZN.O) and Alphabet Inc (GOOGL.O), central bank meetings in Europe and the monthly U.S. employment report.

Advancing issues outnumbered declining ones on the NYSE by a 4.91-to-1 ratio; on Nasdaq, a 3.12-to-1 ratio favored advancers.

The S&P 500 posted 10 new 52-week highs and no new lows; the Nasdaq Composite recorded 100 new highs and 25 new lows.

About 12 billion shares changed hands in U.S. exchanges, compared with the 11.4 billion daily average over the last 20 sessions.

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