NEW YORK (AP) — Wall Street blazed to another rally to cap a winning week, month and first half of the year after reports suggested pressure on inflation may be easing. The S&P 500 jumped 1.2% Friday to reach its highest level since April 2022. It surged 15.9% in the first half of the year. The Dow rose 0.8% and the Nasdaq composite added 1.4%. The market has rallied through 2023 in part because the economy has been able to avoid a long-predicted recession. Wall Street hopes inflation is easing enough for the Federal Reserve to soon halt its hikes to rates.
THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.
NEW YORK (AP) — Wall Street’s winning week, month and first half of the year are closing with another rally Friday after reports suggested pressure on inflation may be easing.
The S&P 500 was 1.3% higher in afternoon trading. The Dow Jones Industrial Average was up 321 points, or 0.9%, at 34,443, as of 3 p.m. Eastern time, while the Nasdaq composite was 1.5% higher.
The market has cruised through 2023 in part because the economy has been able to defy many predictions for it to fall into a recession, at least so far. The job market in particular has remained resilient despite high interest rates that slow the economy in hopes of dragging down inflation. That's helped profits for companies not fall as much as feared.
“Just think back to the beginning of the year: There was more pessimism both on the economic and corporate fronts,” said Lisa Erickson, head of the public markets group at U.S. Bank Wealth Management. “And we’ve just seen, on both fronts, outperformance.”
Not only that, Wall Street hopes inflation is cooling enough for the Federal Reserve to soon halt its hikes to rates. That would mean less added pressure for the economy and financial markets.
A report on Friday showed the measure of inflation that the Fed prefers to use eased in May. It also said growth in spending by consumers slowed by more than expected. If fewer dollars are chasing after purchases, that could remove more pressure on inflation.
“There’s lots of noise around the edges, but tepid consumption growth and a downward trend for inflation means the end is near for rate hikes,” said Brian Jacobsen, chief economist at Annex Wealth Management.
The Fed has already hiked rates by a mammoth 5 percentage points from virtually zero early last year. Traders on Wall Street pared back bets that the Fed may hike interest rates twice again this year, with the majority betting on the federal funds rate being only 0.25 percentage points higher at the end of 2023, if it all, according to data from CME Group.
Yields in the bond market turned lower after the release of the economic data. The 10-year Treasury yield fell to 3.81% from nearly 3.87% just before the report’s release. It helps set rates for mortgages and other important loans.
The two-year Treasury yield, which moves more on expectations for the Fed, slipped to 4.87% from 4.90% just before the report’s release.
A report from the University of Michigan suggested sentiment among consumers is improving, but their expectations for inflation aren't rising. That could also lead to an easier Fed, which has said it wants to avoid a vicious cycle where expectations for high inflation drive behavior that only increases prices further.
Easier interest rates help prices for all kinds of investments, from stocks to crypto. But technology and other high-growth stocks tend to be seen as some of the biggest winners, and they were helping to lead the market.
Nvidia rose 3.7%, for example. It’s been among a small cadre of stocks that have exploded higher this year amid a frenzy about artificial-intelligence software. It’s up nearly 190% for the year so far.
Apple climbed 1.8% and could become the first U.S. stock to end a day with a total market value of more than $3 trillion.
Cruise line operators also helped drive the rally. Carnival led all stocks in the S&P 500 with a 9.8% gain, while Norwegian Cruise Line climbed 4.7%. Travel stocks have been hot recently on expectations for strong demand as vacationers head back out.
On the losing end of Wall Street was Nike. It fell 2.5% after reporting weaker profit for the latest quarter than expected, though its revenue topped forecasts.
One criticism of the stock market’s rally through the year's first half has been how much of it was because of just a handful of big technology stocks. Gains recently have been broadening out some more, and 86% of the stocks in the S&P 500 were climbing on Friday. The Russell 2000, which tracks the smallest stocks in the market, rose 0.7%.
Stocks are also more expensive than they've been historically, relative to their profits, but they still look “in the zone of OK,” said U.S. Bank's Erickson. She is suggesting investors stick to a “neutral” approach, not bulking up any more than they usually would on stocks versus bonds than they usually would but also not abandoning them.
All told, the S&P 500 is heading for its sixth winning week in its last seven and potentially its best month since October. The index is up 16% through the first six months of the year, which is better than it's done in 16 of the last 23 full years.
In stock markets abroad, indexes rallied across Europe with France’s CAC 40 up 1.2% and Germany’s DAX returning 1.3%.
In Asia, one of the world’s biggest-gaining stock markets this year took a breather after Japan’s Nikkei 225 slipped 0.1%. It still rose 27.2% in the first six months of 2023.
Stocks in Shanghai and South Korea rose 0.6%.
U.S. stock markets will be open a half-day on Monday and closed Tuesday for the Independence Day holiday.
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AP Business Writers Matt Ott, Elaine Kurtenbach and Alex Veiga contributed.
Stan Choe, The Associated Press
