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NEW YORK (AP) — Wall Street is back to record highs, ending a grueling two years of back-and-forth beset by high inflation and fears of a possible recession. The S&P 500 index rose 1.2%, surpassing its all-time high set in early 2022. It had fallen as much as 25% from that record due to concerns about a sharp rise in interest rates. However, inflation has since subsided, the economy is still out of recession, and interest rate easing is now expected. Tech stocks again led the market, with the Nasdaq Composite rising 1.7%. The Dow Jones Industrial Average, which set a new record last month, rose 1.1%.
This is the latest news. Previous articles from the Associated Press are below.
NEW YORK (AP) — Wall Street rose Friday, topping all-time highs hit two years ago before the highest inflation and interest rates in decades sent financial markets around the world into a tailspin. there is a possibility.
The S&P 500 rose 1.2% to 4,835 in afternoon trading, on pace to surpass its all-time closing level of 4,796.56. As of 2:41 p.m. ET, the Dow Jones Industrial Average was up 429 points, or 1.1%, and the Nasdaq Composite was up 1.5%.
Two financial companies, Travelers and State Street, helped lead the market, reporting stronger earnings for the end of 2023 than analysts expected. Travelers rose 6.1% and State Street rose 2.2%.
Tech stocks also rose for the second day in a row after major semiconductor manufacturer Taiwan Semiconductor Manufacturing Co. said it expects sales to beat analysts’ expectations this year. Broadcom rose 6% and Texas Instruments rose 4.6% after announcing a dividend.
If analyst forecasts are correct, S&P 500 companies could see only modest increases in overall profits in the fourth quarter of 2023. However, the outlook for 2024 is becoming more optimistic. Inflation is falling and the U.S. economy has so far managed to avoid a recession that many investors saw as inevitable.
These factors, along with strong expectations that the U.S. Federal Reserve will cut interest rates sharply this year, have helped push the S&P 500 to record highs. It was down 25% from its previous high after inflation hit more than 9%, the worst level since 1981.
The main drug the Federal Reserve uses to combat high inflation is high interest rates, which put the brakes on the entire economy by making borrowing more expensive.
Now that inflation has fallen to 3.4%, the big question on Wall Street is how many interest rate cuts the Federal Reserve will make this year and when it will start cutting rates. The Fed’s key interest rate is at its highest level since 2001, and a rate cut would ease pressure on the financial system and boost investment prices.
Those expectations have already pushed yields lower since the fall, helping give stocks a head start on the rally. The yield on the 10-year U.S. Treasury rose above 5% in October but has recently fallen below 4%.
But yields have recovered some of those losses this week on reports that the economy is still doing better than expected. While such strong numbers may ward off fears of a recession, they could also maintain upward pressure on inflation.
That has forced traders to abandon some of their expectations that the Fed will start cutting rates as early as March. The Fed has signaled it will cut fewer rates this year than investors expected.
Brian Jacobsen, chief economist at Annex Wealth Management, said “the truth is probably somewhere between what the Fed is saying and what the market is expecting” when it comes to when rates will start to cut. “Until the two sides reconcile, it will continue to cause depression and rifts in financial markets.”
The yield on the 10-year Treasury note rose to 4.15% from 4.14% late Thursday.
Yields soared as preliminary reports suggested U.S. consumer mood was rising. According to the University of Michigan, sentiment may have jumped to its highest level since July 2021, which is important for the market because consumer spending is the main driver of the economy.
Perhaps more importantly for the Fed, expectations of future inflation among households appear to be entrenched. A big concern for the Fed is that such expectations could rise and create a vicious cycle that keeps inflation high.
A separate report showed existing home sales slumped in December, when economists had expected an improvement. We hope this marks the bottom for these numbers. If interest rates fall, mortgage interest rates will also fall, which will revitalize the industry.
On Wall Street, Spirit Airlines recouped some of its steep losses from earlier in the week. The company rose 22.5% after the company said it expected fourth-quarter sales to hit the top end of its initial forecast due to strong bookings during the peak holiday travel season.
Nevertheless, the stock is still down 57% for the week after a federal judge blocked the acquisition by JetBlue Airways over concerns it could lead to soaring airfares.
Wayfair soared 9.5% after the company announced it would cut about 1,650 jobs, or 13% of its workforce, in a bid to save more than $280 million a year.
PPG, a supplier of paints, coatings and other materials, suffered losses even though the company reported stronger profits at the end of 2023 than analysts expected. The stock fell 2.4% after its profit outlook for January-March 2024 and the full year fell short of analysts’ expectations.
In overseas stock markets, Japan’s Nikkei Stock Average rose 1.4%, continuing its steepest rise since the beginning of the year. Japan’s inflation rate has slowed for the second straight month, raising the possibility that the Bank of Japan will keep interest rates at ultra-low levels for a little longer.
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Associated Press writers Matt Ott and Zimo Zhong contributed.
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