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NEW YORK (AP) — Wall Street trended higher Friday on reports that a strong job market is giving workers big raises, but key parts of the economy remain overheated. It doesn’t look like that.
The S&P 500 rose 0.5% in morning trading, continuing its first down week in the past 10 weeks. As of 10:20 a.m. ET, the Dow Jones Industrial Average was up 92 points, or 0.2%. The Nasdaq Composite rose 0.5%.
In the bond market, U.S. Treasury yields plummeted following a series of news reports on the economy. It initially rose after the latest monthly jobs report showed U.S. employers unexpectedly accelerated hiring last month. Average hourly wages for workers also rose, even though economists had predicted a decline.
These strong numbers are good news for workers and should keep the economy in good shape. This is positive for corporate profits, which is one of the main factors determining stock prices.
But Wall Street is concerned that the positive data could also convince the Fed that upward pressure on inflation remains. This could mean the Fed will keep interest rates high for longer than expected. This would be bad news for a market that has already rebounded strongly from expectations that the Fed will cut rates sharply by the end of the year. Interest rates are another major factor that determines stock prices.
The jobs report temporarily boosted traders’ expectations for when the Fed will start cutting interest rates. However, a report this morning showed that growth in financial, real estate and other U.S. service industry companies was slower than economists expected last month. Perhaps just as important for the market, the rate of increase in prices paid by companies has slowed.
The report quickly raised traders’ expectations that the Fed would begin lowering interest rates in March. They now expect that probability to be 72%, up from 66% a day earlier, according to CME Group data.
Overall, the data could strengthen Wall Street’s hopes for a perfect landing for the economy, one that slows enough to quell high inflation with high interest rates, but not enough to cause a recession.
The 10-year Treasury yield rose to 4.09% immediately after the jobs report, but ultimately fell to 3.96%, down from 4.00% late Thursday. Low interest rates and yields encourage borrowing and spending, which boosts the economy. It also helps increase investment prices and reduces pressure on the financial system.
On Wall Street, Constellation Brands rose 3.2% after the U.S. maker of Corona and Modelo beers reported better-than-analyst-expected profits for its latest quarter.
Travel-related companies also performed well, recovering more of their losses from the start of the week. Carnival rose 3.4%, while Southwest Airlines rose 3%.
This week’s sharp drop in stock prices is no surprise to many on Wall Street, who had argued that the steep decline in stock prices since the fall was overdone. Critics say the number of rate cuts that traders expect in 2024 is twice as many as the Fed’s three, but that is unlikely unless a recession occurs.
In overseas stock markets, most European indexes fell after data showed inflation rose to 2.9% in December. The rebound from seven straight months of declines has fueled debate over how quickly the European Central Bank can lower interest rates on its own.
The index also fell in much of Asia. Japan’s Nikkei Stock Average was an exception, rising 0.3%. Japanese exporters are betting on tailwinds from the yen’s fall in value against other currencies.
The yen has been weakening in recent days on speculation that the Bank of Japan may move slowly to change its ultra-aggressive interest rate policy in the wake of Monday’s devastating earthquake in central Japan.
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AP Business writers Yuri Kageyama and Matt Ott contributed.
Stan Cho, Associated Press
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