NEW YORK (`) – Wall Street charted higher Friday and is heading for its best week since March despite a long list of concerns.
The S&P 500 gained 0.2% in midday trade and is on course for a 2% weekly gain. That would break a long, listless period of failing to make a 1% gain or fall for six weeks. The Dow Jones Industrial Average was up 72 points, or 0.2%, to 33,608 points as of 11:05 a.m. Eastern Time, while the Nasdaq Composite practically stalled.
Rising hopes that the US government can avoid a catastrophic default on its debt was a key driver for the market this week. The White House said Friday morning in Japan that negotiators had informed President Joe Biden, who is attending a Group of Seven summit there, that they were making progress on an agreement to raise the federal government’s credit limit.
Without the ability to borrow more, the US government could default on its debt for the first time, triggering widespread problems throughout the economy. The White House and House Republicans are targeting a June 1 deadline, by which time the government could run out of money to pay its bills.
Better earnings reports than feared by large US companies have also helped support equities in recent weeks.
DXC Technology rose 3.7%, making it one of the biggest gains in the S&P 500 after the company released a mixed earnings report. Its most recent quarter’s revenue fell short of forecasts, but it also announced a new $1 billion program to buy back its own shares. Such purchases can boost a company’s earnings per share.
On the losing side was Foot Locker, which fell 25.9%. The company lowered its financial guidance for the year because it says it needs to cut prices to persuade buyers to buy in what it says is a tough economic environment.
Another retailer, Ross Stores, fell 1.3% after reporting a full-year profit margin that fell short of some analysts’ forecasts. That’s despite the company’s most recent quarter’s sales and earnings beating Wall Street’s expectations.
Deere also beat guidance for sales and earnings in its most recent quarter, but the stock has faltered from an early rise to a modest decline. The stock recently lost 0.3%.
Retailers have come under intense scrutiny this week, with Home Depot, Target and Walmart also reporting mixed results. That’s because robust US household spending was one of the key pillars that kept the economy from sliding into recession.
Manufacturing and other sectors of the economy have been weakened under the weight of significantly higher interest rates aimed at lowering inflation. And there are fears that a slowdown in household spending could perpetuate a recession.
The pressure is on after the Federal Reserve raised interest rates to their highest level since 2007. This has helped inflation cool off from its peak last summer. However, it does so by slowing down the entire economy in one blunt action, causing the prices of stocks and other investments to fall.
The hope on Wall Street is that the Fed could pause at its next meeting in June. This would be the first meeting in more than a year in which it has not hiked rates. But Dallas Fed President Lorie Logan hinted Thursday that another rate hike may be on the cards barring more data coming in pointing to a further slowdown in inflation, which remains well above the Fed’s target.
Fed Chair Jerome Powell discusses monetary policy at an event with his predecessor Ben Bernanke on Friday. He reiterated the importance of bringing inflation back to the Fed’s target.
Treasury yields rose as traders grew more divided over whether the Fed will hike rates again or pause in June. According to data from CME Group, they now see the probability of a rate hike close to 36%, up from less than 16% a week ago.
The yield on the 10-year government bond rose to 3.71% from 3.65% late Thursday. It helps set interest rates on mortgages and other major loans.
The two-year Treasury yield, which is more in line with expectations of Fed action, rose to 4.33% from 4.26%.
Japan’s Nikkei 225 rose 0.8% to its highest close in about 33 years. Japanese CPI data for April showed a 3.4% yoy rise, suggesting inflationary pressures are easing.
Chinese stocks have struggled. Hong Kong’s Hang Seng fell 1.4% and the Shanghai index slipped 0.4%. Indexes were higher across Europe.
` business journalists Yuri Kageyama and Matt Ott contributed.
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