NEW YORK (`) – Stock markets teetered on Thursday as Wall Street’s blistering rally this year cools somewhat.
The S&P 500 rose 0.1% in afternoon trade after slipping 0.6% earlier. The benchmark index was almost evenly split between winners and losers. The Dow Jones Industrial Average was up 40 points, or 0.1%, to 35,324 as of 1:10 p.m. Eastern time, and the Nasdaq Composite was up 0.3%.
A day earlier, US stocks plunged to their worst loss in months. While the drop came after Fitch Ratings has downgraded the US government’s credit ratingSeveral analysts believe the move will have minimal impact on financial markets. US Treasuries are the cornerstone of the global financial system, but the downgrade alone should not prompt investors to sell their bonds.
The big questions remain whether the economy will avoid a recession, how corporate earnings will develop and where interest rates will develop. Hanging over them all is whether the stock market’s big rise this year was overblown, as critics suggest.
Government bond yields in the bond market continued to rise on Thursday, putting more pressure on the stock market. The yield on the 10-year Treasury bond rose to 4.17% from 4.09% late Wednesday and from 2.75% a year ago.
Higher yields mean bonds pay higher interest rates, which can deter stock buyers. They also make it more expensive for companies to borrow and reduce their profits.
Yields have risen as the economy has remained remarkably resilient despite significantly higher interest rates, which should dampen inflation. The US government also continues to borrow heavily.
This was shown by a recent economic report The number of workers applying for unemployment benefits rose last week but remains relatively low.
A solid labor market has helped keep the economy out of a long-predicted recession. But it also threatens to keep upward pressure on inflation. That could prompt the Federal Reserve to hike rates further, daunting Wall Street’s hopes that the last rate hike of the cycle has already happened.
“The Fed has highlighted the job market as a potential inflationary risk and barring signs of deterioration we still hold a higher interest rate outlook longer term,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office.
According to a report by the Institute for Supply Management, growth in the service sector of the US economy continued last month, albeit at a slower pace than economists had expected. A separate report from S&P Global also said growth in the services industry is slowing, suggesting customers are grappling with higher living costs and higher interest rates.
The Fed has raised interest rates to their highest level in more than two decades, after standing at virtually zero early last year. High interest rates dampen inflation by significantly slowing down the overall economy and depressing investment prices.
Critics say that a consensus formed too quickly on Wall Street that inflation will continue to ease and that the Fed may not only halt its rate hikes, but may even start cutting them early next year.
across the atlantic, The Bank of England raised interest rates on Thursday back to a 15-year high, indicating it could stay high for a while longer. This followed a move by the Bank of Japan last week that could allow longer-term interest rates there to rise.
Earnings report season continues for major US companies as well. The majority have reported better than expected spring results, but that is usually the case and expectations were quite low at the start of the season this quarter.
Qualcomm plummeted 8.9%, posting one of the biggest losses on the S&P 500. The company reported weaker-than-expected sales for the spring, although earnings beat forecasts.
On the winning side was Clorox, which gained 10%. It reported higher earnings and sales than analysts had expected.
Energy producer shares were also stronger as crude oil prices rose about 2.7%. Exxon Mobil gained 2.2%.
Two highly influential companies are due to release their earnings after the close of trading for the day. Apple and Amazon are two of the largest companies on Wall Street by market value, giving their stock movements more weight in the S&P 500 and other indices.
Both are also up more than 45% this year on expectations of continued growth, and they need to deliver to justify their big stock gains.
In equity markets overseas, indices fell across Europe and much of Asia.
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