NEW YORK (`) – Stocks rose for the first time in three days on Thursday, even as bond yields rose to add pressure on Wall Street.
The S&P 500 rose 29.96 points, or 0.8%, to 3,981.35 after reversing a morning loss. The Dow Jones Industrial Average was up 341.73, or 1%, to 33,003.57, while the Nasdaq Composite was up 83.50, or 0.7%, to 11,462.98.
Stocks turned from losses to gains after a Federal Reserve official made comments raising hopes the central bank may not step up its fight against inflation as aggressively as feared. This countered recent talks by other officials that raised concerns about much larger rate hikes after several reports on the economy were hotter-than-expected.
Raphael Bostic, President of the Federal Reserve Bank of Atlanta, told reporters that for now he still supports a hike in the Fed’s key federal funds rate to a range of 5% to 5.25% from the current 4.50% to 4.75%. That’s less than a good portion of Wall Street investors are predicting.
“That’s given the market a little hope that there’s a voice that isn’t saying to raise terminal interest rates,” said Brent Schutte, chief investment officer at Northwestern Mutual Wealth, “because eventually the Fed will stop raising rates.” increase,” said Brent Schutte, chief investment officer at Northwestern Mutual Wealth of the other people in the conversation seem to keep saying, ‘elevator up.'”
Higher interest rates can lower inflation by slowing the economy, but they also increase the risk of a recession later. They also hurt the prices of stocks and other assets.
“Here we are now,” said Schutte. “We base our policy – and the market is moving away – on monthly data rather than people looking at the trend. And these things are revised. That’s why it’s so volatile.”
Sentiment was somber in the morning after a report showed last week fewer workers had filed for unemployment benefits for the third straight week. The latest data shows that the labor market remains more resilient than expected, despite the Federal Reserve raising interest rates at its fastest pace in decades.
While this is good news for workers and calming fears of a near-term recession, there are concerns that an overly strong labor market could push inflation further higher. Inflation has recently cooled more stubbornly than expected.
A separate report on Thursday showed that labor costs for the final three months of 2022 were higher than previously reported, while productivity was revised down. Both could also increase pressure on inflation. It follows other reports from the last month showing that overall job growth, consumer spending and inflation at multiple levels of the economy all remain higher than expected.
“The economy is pretty healthy and from a spending perspective this actually provides a lot of support for rising earnings estimates,” said Brad McMillan, chief investment officer of the Commonwealth Financial Network. “But the other side of this is that the Fed sees it too and the market sees that the Fed sees it.”
The strong economic reports have forced Wall Street to raise its forecasts of how high the Fed will eventually set interest rates. It also means a delay in any hopes of upcoming rate cuts.
The reversal was evident in the bond market, where government bond yields have skyrocketed. The yield on the 10-year government bond rose to 4.06% from 4.00% late Wednesday and from less than 3.40% earlier in the year. It helps set interest rates on mortgages and other loans that shape the economy, and it’s near its highest level since November.
The two-year yield, which is more in line with Fed expectations, rose to 4.90% from 4.88% and is near its highest level since 2007.
“We’re all sitting around waiting to see what level they crash the economy at, and unfortunately by that point it will be too late,” Northwestern Mutual Wealth’s Schutte said of the Fed and interest rates.
Salesforce’s shares soared 11.5%, making it one of the market’s biggest gains after it beat forecasts for earnings and revenue last quarter. There was also a stronger than expected forecast for the upcoming results.
Earnings expectations for large US companies have fallen recently amid still high inflation and interest rates. But several joined Salesforce on Thursday after posting encouraging results.
Macy’s rose 11.1% after reporting stronger earnings and earnings than analysts had expected for the holiday. It also gave a forecast earnings range for this year that was above some analysts’ expectations.
It came at odds with several other major retailers, who have recently issued disheartening forecasts given the struggles facing some US households amid still-high inflation.
On the loser side was Telsa, down 5.9%. It said its next generation of vehicles will cost half as much, but gave few details about its design in a presentation to investors.
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` business writer Christopher Rugaber and ` business writers Joe McDonald and Matt Ott contributed.
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