NEW YORK (`) — Stocks teetered in afternoon trading on Wall Street on Friday, heading for weekly losses as investors reviewed mixed news on the economy.
CONTINUE READING: The Commerce Department’s inflation gauge shows price increases slowing to 5.5 percent
The S&P 500 shrugged off an early loss and was up 0.3 percent as of 1:03 p.m. Eastern. The Dow Jones Industrial Average rose 128 points, or 0.4 percent, to 33,152 and the Nasdaq fell 0.1 percent. The S&P 500 and Nasdaq are on course for their third consecutive week of losses.
The markets face a long weekend and will close on Monday for the Christmas holidays.
The government reported on Friday that a key measure of inflation is continuing to slow, though it’s still much higher than anyone cares to see. The Federal Reserve monitors the inflation gauge in the Consumer Expenditure Report, called the Personal Consumption Expenditure Index, even more closely than the government’s better-known CPI.
Consumer spending growth also weakened more than expected last month, but incomes were slightly stronger than expected. Markets are in a tough spot where relatively healthy consumer spending and a strong labor market are reducing the risk of a recession but also increasing the risk of higher interest rates from the Fed.
Helping the market was a report that US households are lowering their forecasts for upcoming inflation. That could help avoid a scenario the Federal Reserve has often said it’s “wanted to avoid at all costs”: a vicious cycle in which buyers rush to make purchases ahead of expected price hikes that would only worsen inflation.
Consumers are expecting inflation to come in at 4.4 percent next year, according to the final results for December from a University of Michigan survey. That’s better than preliminary numbers released earlier this month and the lowest of its kind in 18 months. At 2.9 percent, longer-term inflation expectations are still within the narrow range of 2.9 percent to 3.1 percent that has been observed almost continuously for the past year and a half.
Government bond yields rose after the reports. The 10-year Treasury yield, which drives mortgage rates, rose to 3.74 percent from 3.69 late Thursday. The yield on two-year government bonds, which tends to be based on the measures taken by the Fed, rose from 4.28 percent to 4.32 percent.
The latest reports are the last major economic updates of the year and investors will soon turn their focus to the next round of corporate earnings. Most investors hope these reports and forecasts, along with the picture of corporate earnings, will give them a better sense of how consumers are faring, said Chris Zaccarelli, chief investment officer at the Independent Advisor Alliance.
SEE: How inflation is changing the way some Americans celebrate the holidays
“The stock market is in a difficult position,” he said. “If the consumer starts to slow down, earnings will likely fall, but if the consumer stays strong, the Fed needs to stay strong and interest rates keep going up.”
The Fed has been outspoken about its plan to continue raising interest rates aggressively to tame inflation, even as the rate of inflation slows further. The Fed has already raised its key federal funds rate to a 15-year high after starting the year at a record low of around zero. The benchmark interest rate, the federal funds rate, is in a range of 4.25 percent to 4.5 percent, and Fed policymakers forecast that the interest rate will reach a range of 5 percent to 5.25 percent by the end of 2023.
Their forecast calls for no rate cut before 2024. High interest rates have raised concerns that the economy could be slowing too much and slipping into recession in 2023. High interest rates have also weighed heavily on stock and other investment prices.
Inflation remains a global problem. Japan said its core inflation rate excluding non-perishable fresh food rose to 3.7 percent in November, the highest since 1981, as rising costs of oil and other commodities added to price pressures in the world’s third-largest economy.
Markets in Asia fell and markets in Europe closed mixed.
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