FILE – An NYSE sign is seen on the floor of the New York Stock Exchange in New York on Wednesday, June 15, 2022. (` Photo/Seth Wenig, File)
NEW YORK (`) — Wall Street is nearing its all-time high reached two years ago as it climbs slightly higher Friday.
The S&P 500 rose 0.3% to 4,794, just below its record 4,796.56. The Dow Jones Industrial Average rose 70 points, or 0.2%, as of 10:40 a.m. Eastern time, and the Nasdaq Composite was 0.5% higher.
Two financial companies, Travelers and State Street, added to the market leadership after reporting higher earnings for the end of 2023 than analysts expected. Traveler numbers rose 4.5% and State Street rose 3.4%.
Tech stocks were also strong for a second straight day after heavyweight chipmaker Taiwan Semiconductor Manufacturing Co. gave better-than-expected forecast for sales growth this year. Broadcom rose 2.7% and Texas Instruments rose 3.7% after the stock declared its dividend.
If analysts' estimates are reasonably accurate, companies in the S&P 500 are likely to report only modest, if any, growth in total earnings for the fourth quarter of 2023. However, there is greater optimism for 2024. Inflation is on the way down and the US economy has managed to avoid a recession that many investors had previously seen as inevitable.
These factors, along with strong expectations that the Federal Reserve will sharply cut interest rates this year, have pushed the S&P 500 to the brink of its record. It had previously fallen as much as 25% from its all-time high after inflation topped 9%, reaching its most painful level since 1981.
The main medicine the Federal Reserve uses to curb high inflation is high interest rates, which slow down the entire economy more by making borrowing more expensive.
With inflation down to 3.4%, the big question on Wall Street is how often the Federal Reserve will cut interest rates this year and when it will begin. Cutting the Fed's key interest rate from its highest level since 2001 would ease pressure on the financial system and boost investment prices.
Because of these expectations, yields have already fallen since the fall, helping to give the stock market a head start on its rally. After topping 5% in October, the 10-year Treasury yield recently fell back below 4%.
However, this week yields recouped some of those losses after reports showed the economy is stronger than expected. While such solid numbers keep recession worries at bay, they could also keep upward pressure on inflation.
That, in turn, has forced traders to abandon many of their bets that the Fed will begin cutting interest rates as early as March. The Fed has hinted at fewer interest rate cuts this year than investors expected.
“The truth is probably somewhere between what the Fed is saying and what the market is expecting” regarding the timing of the first rate cut, said Brian Jacobsen, chief economist at Annex Wealth Management. “This will continue to lead to dips and disruptions” in the financial markets “until the two are reconciled.”
The 10-year yield rose to 4.16% from 4.14% late Thursday, putting some pressure on the stock market.
Yields rose after a preliminary report suggested sentiment among U.S. consumers is surging. According to the University of Michigan, sentiment may have risen to its highest level since July 2021, and consumer spending is the main driver of the economy.
Perhaps more importantly for the Fed, household expectations of upcoming inflation appear to be anchored. One of the Fed's bigger concerns was that such expectations could get out of hand and trigger a vicious cycle that keeps inflation high.
A separate report said sales of occupied homes fell in December, although economists expected an improvement. The hope is that this marks a low point for the number. If interest rates fall, mortgage rates could also fall, which would help stimulate the industry.
On Wall Street, Spirit Airlines recovered some of its heavy losses from earlier in the week. The company rose 20.3% after saying bookings were strong for the peak holiday season and expects fourth-quarter revenue at the high end of its previous forecast.
Yet the stock is still down 54.2% this week after a federal judge blocked JetBlue Airways' purchase over fears it could lead to higher airfares.
Wayfair rose 10.4% after announcing it would cut about 1,650 jobs, or 13% of its workforce, to save more than $280 million annually.
On the losing side was PPG, although the supplier of paints, coatings and other materials reported higher profits for the end of 2023 than analysts expected. It fell 1.9% after it also gave profit forecasts for the first three months of 2024 and the full year that fell short of analysts' expectations.
In overseas stock markets, Japan's Nikkei 225 rose 1.4%, continuing its strong rise since the start of the new year. Japan's inflation rate has slowed for the second month in a row, increasing the likelihood that the Bank of Japan will maintain its ultra-low interest rates for a little longer.
___
` writers Matt Ott and Zimo Zhong contributed.
Comments are closed.