Wall Street’s main indexes climbed on Friday as a softer-than-expected inflation report boosted hopes of an early start to interest-rate cuts, while investors assessed a mixed bag of earnings reports from major lenders.
Quick Read
- Mixed Stock Performance: Stocks are showing varied performance, with the S&P 500 nearly unchanged, the Dow Jones down 0.4%, and the Nasdaq up 0.1%.
- Oil Prices Rising: Crude oil prices increased sharply due to concerns over supply disruptions following the U.S. and U.K. strikes against Yemen’s Houthi rebels.
- Bond Yields Decreasing: U.S. Treasury yields fell following a report indicating weaker-than-expected inflation at the wholesale level in the U.S.
- Fed Rate Cut Expectations: Wall Street is optimistic that the Federal Reserve will cut interest rates several times this year, as indicated by the drop in Treasury yields.
- Financial Market Reacts to Inflation Data: The recent reports on consumer and wholesale inflation are influencing market expectations about the Fed’s interest rate decisions.
- Bank Earnings Reports: Banks kicked off earnings reporting season with mixed results: Bank of America and Wells Fargo saw stock declines, while JPMorgan Chase’s stock rose.
- Delta Air Lines’ Stock Decline: Despite strong earnings, Delta Air Lines’ stock fell due to a lower-than-expected profit forecast for the upcoming year.
- Impact on Travel Companies: The surge in oil prices negatively affected stocks of travel-related companies like airlines and cruise lines.
- Energy Sector Gains: Energy stocks, such as Valero Energy and Marathon Oil, gained in response to the rise in oil prices.
- International Market Movements: Japan’s Nikkei 225 saw a notable jump, reaching its highest levels since 1990, while other Asian markets were mixed and European markets generally rose.
The Associated Press has the story:
Wall Street gains as inflation data boosts Fed rate-cut hopes
Newslooks- NEW YORK (AP) —
Stocks are drifting, oil prices are jumping and bond yields are easing in a busy Friday with plenty of cross currents sweeping Wall Street.
The S&P 500 was virtually unchanged in morning trading, still hanging within 0.3% of its all-time high set two years ago, as earnings reporting season kicked off with mixed results from Delta Air Lines, JPMorgan Chase and Wells Fargo. The Dow Jones Industrial Average was down 132 points, or 0.4%, as of 10:15 a.m. Eastern time, and the Nasdaq composite was 0.1% higher.
Some of the strongest action was in the oil market, where crude prices rose on worries about potential disruptions to supplies. A barrel of benchmark U.S. oil gained 2.7% after Yemen’s Houthi rebels vowed fierce retaliation for U.S. and U.K. strikes against them. Brent crude, the international standard, rose 3% and likewise clawed back sharp losses from earlier in the week.
In the bond market, yields sank after a report showed inflation at the U.S. wholesale level was weaker last month than economists expected. That followed a report from the prior day that had shown inflation at the consumer level was warmer than expected.
Friday’s report gave Wall Street comfort and bolstered confidence that inflation is cooling enough for the Federal Reserve to cut interest rates several times this year. Rate cuts relax the pressure on the economy and financial system, while boosting prices for investments. And Treasury yields have already sunk since autumn on expectations for coming cuts to rates.
The yield on the 10-year Treasury eased further to 3.93% from 3.99% just before the report’s release. When it was above 5% in October, it was at its highest level since 2007 and putting sharp downward pressure on the stock market.
The two-year Treasury yield, which more closely tracks expectations for the Fed, fell to 4.17% from 4.27% before the wholesale inflation report’s release. Traders rebuilt bets that the Federal Reserve will begin cutting interest rates in March, according to data from CME Group.
Traders are largely betting on the Fed cutting its main interest rate at least six times through 2024. That would be a much more aggressive track than the Fed itself has hinted. Fed officials have even cautioned they may raise rates further if inflation refuses to buckle convincingly toward their target of 2%. The federal funds rate is already at its highest level since 2001.
“The danger of Fed fine-tuning is that they could be fiddling while the economy is burning down,” said Brian Jacobsen, chief economist at Annex Wealth Management. “If they’re data-dependent, that means they’re looking in the rearview mirror. Now they need to shift their gaze forward through the windshield.”
Interest rates are one of the main levers that set where stock prices are. The other is how much profit companies are making, and analysts expect the S&P 500 to deliver a second straight quarter of growth after earlier faltering under the weight of high inflation.
The reporting season for the end of 2023 unofficially got underway Friday with a bevy of reports from banks.
Bank of America fell 2.1% after its profit for the last three months of 2023 fell short of analysts’ estimates. Wells Fargo lost 2.3% after essentially matching analysts’ expectations, while JPMorgan Chase rose 1.2% despite reporting weaker results than expected.
UnitedHealth Group fell 3.5% despite topping analysts’ profit forecasts. Medical costs for the health care giant soared, worrying investors.
Delta Air Lines sank 7.9% even though it reported stronger profit and revenue for the final three months of 2023 than analysts had forecast. The carrier gave a forecasted range indicating its upcoming full-year profit could be below what analysts had been expecting.
The airline and other travel-related companies were also hurt by the jump in oil prices, which puts pressure on their fuel costs. United Airlines fell 8.7%, and Norwegian Cruise Line Holdings lost 3.9%.
Stocks of energy companies, meanwhile, were leading the S&P 500 with an overall gain of 1%. Valero Energy rose 2.6%, and Marathon Oil climbed 2.1%.
In stock markets abroad, Japan’s Nikkei 225 jumped 1.5% to cap a week of strong gains that took it to levels unseen since 1990, when the country’s bubble economy was beginning to deflate. Indexes were lower in much of the rest of Asia but higher across Europe.
