FILE – In this November 23, 2020 file photo, a street sign is displayed at the New York Stock Exchange in New York. (AP Photo/Seth Wenig, File)
By Stan Chow (AP Business Writer)
NEW YORK (AP) – Shares rose on Friday after the head of the Federal Reserve said he would “proceed cautiously” as he decides what to do with interest rates, sending Wall Street to its first winning week since July .
The S&P 500 climbed 29.40, or 0.7%, to 4,405.71 after fluctuating between small gains and losses a few times throughout the day. The Dow Jones Industrial Average rose 247.48 points, or 0.7%, to 34,348.90 and the Nasdaq Composite rose 126.67, or 0.9%, to 13,590.65.
In a highly anticipated speech, Fed Chairman Jerome Powell reiterated that he would base future decisions on interest rates based on incoming data reports about inflation and the economy, and he made no promises about what would happen next.
Wall Street telegraphed the speech on the calendar because it expected Powell to say that the Fed has raised interest rates to reduce inflation at the cost of slowing the economy and hurting prices for investments.
Powell said instead that the Fed could raise interest rates again if the need arose. Although inflation has come down from its peak last summer, Powell said it is still very high.
But he also took care to say he was aware of the risks of going too far on interest rates and causing “unnecessary damage to the economy.” Overall, the comments were not much different from what Powell had said previously, analysts said.
But one word from Powell made a lot of sense to Brian Jacobsen, chief economist at Anex Wealth Management, especially as it related to Powell’s speech at the same Fed event last year. That 2022 speech caused a massive drop in stocks.
“Caution is the new force,” Jacobsen said. “Last year, Powell said the Fed would respond strongly, and they certainly did. Now they can walk carefully. Any adjustment in rates now would be like fine tuning.
The Fed has already raised its key interest rate to its highest level since 2001 as part of its drive to tame high inflation. It was almost above zero at the beginning of last year.
The very high rates have already sent the manufacturing industry into contraction and helped cause three high-profile US bank failures during the spring. They have also helped slow inflation, but stronger-than-expected reports on the economy have raised concerns that upward pressures remain. This could force the Fed to keep rates high for a long time.
Such expectations pushed the yield on the 10-year Treasury this week to its highest level since 2007. It fell to 4.23% from 4.24% late Thursday, though it is still down from 0.70% three years ago.
Higher yields mean that the bonds are paying more interest to investors. This makes investors less likely to pay higher prices for stocks and other investments, whose price can fluctuate more quickly than for bonds. Big Tech and other high-growth stocks especially feel such pressure.
The two-year Treasury, which more closely tracks expectations for the Fed, rose to 5.07% from 5.02% late Thursday. Traders see a more than 50% chance that the Fed will raise its key interest rate again this year. That’s a sharp rise from just a week ago, according to data from CME Group.
The threat of rates staying high for a longer period of time has helped stocks slide in August, which had been a gangbuster year. The S&P 500 is down 4% after rising 19.5% through July.
Worries about prolonged high rates also weighed on Nvidia’s stellar profit report on Thursday, which has become one of Wall Street’s most influential stocks. The chip maker again gave a stronger-than-expected forecast for upcoming revenue, raising hopes that this year’s frenzy around artificial-intelligence technology may be justified. The AI frenzy was a big reason the S&P 500 soared earlier this year.
Marvell Technology, another company that is touting growth coming from AI, fell 6.6% on Friday after reporting its profit. Its results were more than expected by analysts. Its stock had climbed almost 55% during the day itself.
On the winning side of Wall Street, Gap rose 7.2% after the retailer reported stronger profit than analysts expected for the latest quarter, although its revenue fell short of forecasts.
In markets overseas, stock indices in Europe were marginally higher after losses in most of Asia.
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AP Business Writers Yuri Kageyama and Matt Ott contributed.
Source: www.greeleytribune.com
