Wall Street concluded its 10th winning week in the last 11 with a mixed finish on Friday following an encouraging report on inflation. The S&P 500 edged up by 0.1% as the earnings reporting season kicked off with mixed results from Delta Air Lines, JPMorgan Chase, and others. The Dow Jones Industrial Average fell 118 points, or 0.3%, dragged down by a sharp loss for UnitedHealth Group following its results. The Nasdaq was essentially flat, rising by less than 0.1%.
Stocks have been surging toward records for months, pulling the S&P 500 within 0.3% of its all-time high, fueled by hopes that inflation is cooling enough for the Federal Reserve to cut interest rates multiple times this year. Treasury yields have already decreased in the bond market on these expectations, and they fell further after a report showed weaker-than-expected inflation at the U.S. wholesale level last month. This data strengthened expectations for rate cuts, especially after another report showed higher-than-expected consumer-level inflation.
The yield on the 10-year Treasury eased to 3.94% from nearly 4% just before the report’s release. In October, it was above 5%, reaching its highest level since 2007. Easier rates and yields alleviate pressure on the economy and financial system, boosting prices for investments.
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 six or more times through 2024, a more aggressive track than the Fed itself has hinted. The Federal Reserve has even cautioned it could raise rates further if inflation does not convincingly buckle toward its 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. JPMorgan Chase dipped 0.7% after reporting weaker results for the last three months of 2023 than expected. UnitedHealth Group fell 3.4% despite topping analysts’ profit forecasts. Medical costs for the health care giant soared, worrying investors.
Delta Air Lines sank 9% even though it reported stronger profit and revenue for the final three months of 2023 than analysts had forecast. The carrier’s forecasted range for upcoming full-year profit indicated it could fall below what analysts had been expecting.
The airline and other travel-related companies were also hurt by a rise in oil prices, which put pressure on their fuel costs. United Airlines fell 10.6%, and Norwegian Cruise Line Holdings lost 4.3%.
Crude prices climbed on worries about potential disruptions to supplies after Yemen’s Houthi rebels vowed fierce retaliation for U.S. and U.K. strikes against them. A barrel of benchmark U.S. crude oil rose 66 cents to $72.68. Brent crude, the international standard, rose 88 cents to $78.29 per barrel.
This helped stocks of energy companies lead the S&P 500 with an overall gain of 1.3%. Valero Energy rose 2.8%, and Marathon Oil climbed 2%.
All told, the S&P 500 rose 3.59 points to 4,783.83. The Dow fell 118.04 to 37,592.98, and the Nasdaq composite gained 2.57 to 14,972.76.
In stock markets abroad, Japan’s Nikkei 225 jumped 1.5% to cap a strong week that brought 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 in Europe.
