Gains mostly fade for stocks, leaving Wall Street mixed

By Damian J. Troise, The Associated Press on January 9, 2023.

NEW YORK (AP) – Stocks gave up early gains and drifted to a mixed close on Wall Street. Weakness in health care companies worsened throughout the day. Stocks are coming off their first weekly gain in five on hopes the Federal Reserve may ease up on its economy-shaking hikes to interest rates as inflation cools. The S&P 500 ended up just barely lower on Monday after being up as much as 1.4% in the early going. Gains for tech companies mostly held up, leaving the Nasdaq 0.6% higher. The Dow fell 0.3%. Treasury yields fell further as traders adjust bets for what the Fed will do.

THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.

NEW YORK (AP) – Stocks are mostly ticking higher on Wall Street Monday, adding to gains built on hopes the Federal Reserve may ease up on its economy-shaking hikes to interest rates as inflation cools.

The S&P 500 was 0.2% higher in its first trading since closing out its first winning week in the last five. The Dow Jones Industrial Average was down 79 points, or 0.2%, at 33,551, as of 3:05 p.m. Eastern time, and the Nasdaq rose 1%.

The stock market’s positive start to the year has come as data offer hope the nation’s high inflation will keep easing from its summertime peak, which would let the Fed stop hiking rates earlier than otherwise. Such rate increases have already slowed parts of the economy sharply, and the fear is more big hikes could cause a painful recession.

Treasury yields fell further Monday as traders adjust bets for what the Fed will do. They dropped Friday after data showed workers are winning weaker raises than in earlier months. While that’s discouraging for workers who are still failing to see pay keep up with rising prices, it could ultimately mean less upward pressure on inflation.

The next big marker for the market will be Thursday’s report on inflation at the consumer level. Economists expect it to show inflation slowed further to 6.5% last month from 7.1% in November.

The yield on the two-year Treasury, which tends to track expectations for Fed action, fell to 4.19% from 4.26% late Friday and more than 4.70% in November. The yield on the 10-year Treasury, which helps set rates for mortgages and other important loans, fell to 3.51% from 3.57% late Friday.

Lower rates tend to help high-growth and technology stocks in particular, and they were some of the market’s leaders Monday.

Tesla jumped 7.5%, Nvidia rose 7.1% and Advanced Micro Device climbed 7% for some of the biggest gains in the S&P 500. Roughly three out of five stocks in the index were rising.

Analysts, though, warn more bumpiness is almost surely on the way for the stock market. Even if inflation is slowing, the Fed has pledged to hike rates still further and them to hold them at a high level for a while to make sure the job is done on inflation.

And parts of the economy that do best when rates are low have already shown signs of sharp pain as the Federal Reserve has hiked its key overnight rate to a range of 4.25% to 4.50% from roughly zero a year ago.

Warnings are also coming for what look to be lackluster earnings reports from companies, which are contending with higher labor costs and other expenses that eat into their profits. Earnings reporting season is set to kick off on Friday, and this may mark the first year-over-year drop in earnings per share for S&P 500 companies since 2020.

“With 2022 behind us, investors are now primarily focused on the profit outlook for the coming year,” strategists at Goldman Sachs wrote in a report.

For the full year of 2023, they see zero growth for S&P 500 earnings per share. And that’s if the economy avoids a recession. If a recession does hit, as many on Wall Street suspect, they say earnings could fall 11%. That’s key because profits are one of the main levers that set stock prices.

Some retailers on Monday offered discouraging financial updates. Macy’s shed 7% and Lululemon Athletica fell 9.1% after issuing cautious forecasts.

Stock markets in Europe and Asia gained ground. A Chinese financial news outlet cited a top central bank official as saying that China’s more than two-year crackdown on internet companies is nearly finished.

E-commerce giant Alibaba rose 3.5%. Late Friday, Alibaba affiliate and leading Chinese financial technology provider Ant Group announced its founder, e-commerce billionaire Jack Ma, will give up control of the company. The move followed efforts by the Chinese government to rein in Ma and the country’s tech sector more broadly.

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AP Business Writers Elaine Kurtenbach and Matt Ott contributed to this report.

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