The New York Stock Exchange on Wednesday, June 29, 2022 in New York. Stocks are off to a weak start on Friday, continuing a dismal streak that pushed Wall Street into a bear market last month as traders worry that inflation will be tough to beat and that a recession could be on the way as well. (AP Photo/Julia Nikhinson)
NEW YORK (AP) – Wall Street edged higher in quiet trading, closing out a third straight winning week and keeping November on track to be its biggest month of the year. The S&P 500 rose 0.1% Friday, near its highest level in three months. The Dow was little changed, and the Nasdaq composite rose 0.1%. Several retailers reported better results for the latest quarter, joining a long list of companies in what’s been a stronger earnings reporting season than hoped. But the main reason for this week’s leap for stocks was rising hope that the Federal Reserve is done hiking interest rates and may turn to cutting them next year.
THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.
NEW YORK (AP) – Wall Street is edging higher in quiet trading on Friday as its scorching November rolls toward the close of a third straight winning week.
The S&P 500 rose 0.2% in afternoon trading and is near its highest level in three months. The Dow Jones Industrial Average was up 24 points, or 0.1%, as of 2:06 p.m. Eastern time, and the Nasdaq composite was 0.2% higher.
Several retailers were making strong gains after reporting better results for the latest quarter than analysts expected. Gap surged 28.6% after reporting much higher profit than Wall Street had forecast, more than doubling its gain for the year so far. Ross Stores climbed 8.3% after reporting stronger profit and revenue than expected.
On the losing end was BJ’s Wholesale Club, which fell 4.1% despite also reporting better results than expected. Analysts pointed to an underlying sales figure that strips out the boost from store openings, which fell short of expectations.
Retailers are closing out what’s been a better-than-hoped earnings reporting season for the summer. Companies in the S&P 500 are on track to report their first overall growth in a year, according to FactSet.
But the much more impactful factor driving stocks higher this week was hope that inflation has cooled enough for the Federal Reserve to finally be done with its market-crunching hikes to interest rates.
The Fed has already raised its main interest rate to the highest level since 2001, trying to slow the economy and dent financial markets just enough to get inflation under control without causing a painful recession.
A report on Tuesday showing inflation at the consumer level cooled more than expected last month ignited hopes that the Fed could pull off the tricky balancing act. Subsequent readings fanned the hopes higher after suggesting inflation and the overall economy may be slowing.
Now traders are trying to bet on when the Fed could actually begin cutting interest rates, something that can juice prices for investments and provide oxygen across the financial system. The Fed has said that it plans to keep rates high for a while to ensure that the battle against inflation is definitively won, but traders are thinking cuts could begin early in the summer of 2024.
One source of potential worry about inflation has been receding in recent weeks. Oil prices have plunged amid worries about a mismatch between too much crude supply and too little demand.
A barrel of U.S. crude rose 3.9% Friday to $75.75 to recover some of its sharp losses from earlier in the week. But it’s still well below its perch above $93 in late September.
Brent crude, the international standard, rose 4.1% to $80.59 per barrel Friday.
In the bond market, the yield on the 10-year Treasury remained at 4.44% from late Thursday. Just a few weeks ago, it was above 5%, at its highest level since 2007 and undercutting prices for stocks and other investments.
Of course, too steep a drop in Treasury yields and too big a rally in stock prices could end up conspiring to work against Wall Street. Chair Jerome Powell said after the Fed’s last meeting on interest rates that it may not hike any more if the summer’s jump in Treasury yields and fall in stock prices remained “persistent.” That’s because they could act almost like substitutes for more rate increases.
Since then, yields have dropped sharply, and November is on track to be the best month for the S&P 500 in a year. It all means financial conditions have unwound about half of the tightening seen in October, according to economists at Deutsche Bank.
Still, recent reports on inflation and the economy have been so encouraging that “the Fed can afford to be less concerned with this easing,” according to Justin Weidner and the other economists.
In stock markets abroad, Hong Kong’s Hang Seng tumbled 2.1%. Shares of Chinese e-commerce giant Alibaba plunged following its cancellation of a plan to spin off its cloud computing unit. The company cited uncertainties due to U.S. chip restrictions.
Stock indexes were mixed elsewhere in Asia while rising more strongly in Europe.
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AP Writers Zimo Zhong and Matt Ott contributed.
