NEW YORK (news agencies) — Wall Street returned to record heights and capped a punishing, two-year round trip dogged by high inflation and worries about a possible recession. The S&P 500 rallied 1.2% to surpass its prior all-time high set at the start of 2022. It had dropped as much as 25% from that record on worries about much higher interest rates. But inflation has since cooled, the economy has remained out of a recession and the expectation is now for rates to ease. Tech stocks again helped lead the market, and the Nasdaq composite rose 1.7%. The Dow, which set its own record last month, rose 1.1%.
THIS IS A BREAKING NEWS UPDATE. news agencies’s earlier story follows below.
NEW YORK (news agencies) — Wall Street is rising Friday and may break past its all-time high set two years ago, before the highest inflation and interest rates in decades sent financial markets tanking worldwide.
The S&P 500 was up 1.2% at 4,835 in afternoon trading, on pace to surpass its record closing level of 4,796.56. The Dow Jones Industrial Average was up 429 points, or 1.1%, as of 2:41 p.m. Eastern time, and the Nasdaq composite was 1.5% higher.
Two financial companies, Travelers and State Street, were helping lead the market after reporting stronger profit for the end of 2023 than analysts expected. Travelers jumped 6.1%, and State Street rallied 2.2%.
Tech stocks were also strong for a second straight day after heavyweight chipmaker Taiwan Semiconductor Manufacturing Co. delivered a better forecast for revenue this year than analysts expected. Broadcom rose 6%, and Texas Instruments climbed 4.6% after announcing its dividend.
Companies in the S&P 500 are likely to report only slight growth in overall profits for the fourth quarter of 2023, if any, if analysts’ estimates are accurate. But optimism is higher for 2024. Inflation is cooling, and the U.S. economy has so far managed to avoid a recession earlier seen as inevitable by many investors.
Those factors, along with strong expectations for the Federal Reserve to cut interest rates sharply this year, are what have driven the S&P 500 to the brink of its record. It had earlier dropped as much as 25% from its all-time high after inflation topped 9% to reach its most painful level since 1981.
The main medicine the Federal Reserve uses to break high inflation is high interest rates, which tighten the brakes on the entire economy by making borrowing more expensive.
With inflation down to 3.4%, the big question on Wall Street now is how many times the Federal Reserve will cut rates this year and when it will begin. The Fed’s main rate is at its highest level since 2001, and cuts would relax the pressure on the financial system and give a boost to investment prices.
Yields have already tumbled since autumn on such expectations, helping to give the stock market a head start in its rally. After topping 5% in October, the yield on the 10-year Treasury dropped back below 4% recently.
This week, though, yields recovered some of those losses after reports showed the economy remains stronger than expected. While such solid numbers keep worries about a recession at bay, they could also keep upward pressure on inflation.
That in turn has forced traders to drop some bets that the Fed will begin cutting rates as soon as March. The Fed has been hinting at fewer rate cuts this year than investors had been betting on.
“The truth is likely somewhere between what the Fed is saying and what the market is expecting” about when cuts will begin, said Brian Jacobsen, chief economist at Annex Wealth Management. “That will continue to cause dips and rips” for financial markets “until the two reconcile with each other.”
The 10-year yield edged up to 4.15% from 4.14% late Thursday.
Yields swiveled after a preliminary report suggested the mood among U.S. consumers is roaring higher. Sentiment may have jumped to its highest level since July 2021, according to the University of Michigan, which is important to markets because spending by consumers is the main driver of the economy.
Perhaps more importantly for the Fed, expectations for upcoming inflation among households seem to be anchored. A big worry for the Fed has been that such expectations could take off and trigger a vicious cycle that keeps inflation high.
A separate report said sales of previously occupied homes weakened in December, when economists were expecting improvement. The hope is that marks a bottom for the figure. If interest rates come down, so too could mortgage rates, which would help invigorate the industry.
On Wall Street, Spirit Airlines recovered some of its steep losses from earlier in the week. It rose 22.5% after it said bookings for the peak holiday travel period were strong, and it expects to report fourth-quarter revenue at the high end of its earlier forecast.
The stock is nevertheless still down 57% for the week after a federal judge blocked its purchase by JetBlue Airways out of worries it could lead to higher airfares.
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