NEW YORK (`) — Apple is leading a rally on Friday after Wall Street’s most influential stock reported better-than-feared earnings. Shares in troubled banks are also bouncing higher to recoup a small part of their sharp losses from a brutal week.
The S&P 500 was up 1.4% in morning trade, though it’s still on course for its worst week in nearly two months. The Dow Jones Industrial Average was up 445 points, or 1.3%, to 33,572 as of 10:30 a.m. Eastern time, while the Nasdaq Composite was up 1.6%.
Treasury yields rose in the bond market after a report showed that the economy-wide hiring rate rose much more than expected last month. The US government’s jobs report also showed that workers received larger-than-expected pay rises in April.
While that’s good news, especially when many economists fear a recession could hit this year, the data also raises concerns that inflation could remain high and push the Federal Reserve to keep interest rates higher.
High interest rates have already cracked the US banking system and fears of next fall have rocked the industry. This week began with regulators seizing First Republic Bank, which was the third major US bank to fail since March.
Investors have been looking for the next possible weak link in the system, driving down stock prices for those seen as at risk of sudden customer churn. This despite protests from banks that deposit levels were stabilizing or strengthening. Some of the hardest-hit companies recovered some of their deep losses on Friday.
PacWest Bancorp is up 54.3%, although it’s still down 51.8% for the week. Western Alliance Bancorp gained nearly 31% to cut its weekly loss to 35.9%.
The concern is that falling stock prices could set banks off in a vicious cycle, causing customers to lose confidence and withdraw their deposits, which then fuels even more fear for the system.
Apple wasn’t up as much as these banks on Friday, but its moves pack a bigger punch to the market. Apple is the most valuable stock on Wall Street, giving its movements outsize weight on the S&P 500 and other indices.
It was the strongest force pushing the S&P 500 higher, up 4.5%. The iPhone maker reported a decline in profit and sales, but results still beat analysts’ muted expectations.
The story was similar for the first three months of the year in the broader market for results. With interest rates high and the economy slowing, analysts went into this earnings season with very low expectations.
Companies in the S&P 500 are on track to report a second straight quarter of earnings declines from year-ago levels, marking what Wall Street is calling an “earnings recession.” But results were mostly better than feared, which helped provide some support to the market.
Live Nation Entertainment rose 12.6% after reporting a smaller loss than analysts had expected, while Cigna Group rose 7.3% after beating forecasts for profit and revenue.
In the bond market, yields soared immediately after the jobs report as traders bet on urging the Fed to keep rates high longer than originally expected.
The Fed said on Wednesday it was unsure of its next move after raising its federal funds rate to a range of 5% to 5.25% from practically zero early last year. She has been raising interest rates at the fastest pace in decades to bring down inflation, but her tool is also slowing the economy and hurting asset prices.
Many traders expect the Fed to hold rates steady at its next meeting in June, which would be the first time in more than a year. After that, expectations diverge.
The Fed has insisted that it sees inflation slowing down, which would mean interest rates would stay high for a while, if not rise further if inflation picks up again. Meanwhile, many traders are expecting the economy to slow down enough for the Fed to cut rates later this year.
Adding to the uncertainty is what is resulting from the turbulence in the US banking industry. If this causes banks to pull back on lending, it could act like rate hikes, further choking the economy.
Friday’s jobs report offered encouraging and disheartening news depending on the outlook.
Strong hiring figures again confirm that the labor market remains resilient. It’s supporting the rest of the economy, which has already started to slow under the weight of much higher interest rates.
Of more concern to pessimists, however, was the 4.4% year-on-year increase in wages for manual workers. The fear is that raising wages too much could push companies to raise the prices of their own goods and take other steps, creating a vicious cycle that keeps inflation high. That, in turn, could pressure the Fed to keep rates high for longer, causing more things to break besides First Republic.
The 10-year Treasury yield rose to 3.44% from 3.38% late Thursday. It helps set interest rates on mortgages and other major loans.
The two-year yield, which is more in line with Fed expectations, rose to 3.88% from 3.79%.
——
` business writers Joe McDonald and Matt Ott contributed.
Comments are closed.