Stocks Jump as Wall Street Cruises to Best Day Since January

NEW YORK—Stocks rallied Friday to send Wall Street to its best day in six weeks.

As Wall Street was under pressure from the relaxed yields of the bond market, the S&P 500 gained 1.6 percent. After an abrupt rise and fall in the beginning of the year, it now has some stability.

The Dow Jones Industrial Average rose 387 points (1.2 percent) while the Nasdaq composite gained 2 percent.

Recent market movements have been driven by the Federal Reserve’s decision to act on inflation.

“I’d love to talk about other things, but the only things that matter are the Fed and trajectory of inflation,” Amanda Agati is chief investment officer at PNC Asset Management.

Wall Street rallied early in the year on the hope that cooling inflation would make it easier for the Fed’s hikes to interest rates. These increases can reduce inflation by slowing down the economy but also increase the risk of a future recession and affect investment prices.

Stocks fell last month as momentum increased after hotter-than-expected reports about the economy. They also included data on consumer spending, the jobs market and inflation at various levels.

Concerns about inflation’s continued rise were raised by the strong data. Wall Street was forced to give up its hopes of rate cuts this year, and instead raised expectations about how high rates would go.

Friday’s data show that the economy is in better health than people thought. The growth of services industries was slightly stronger than predicted by economists. It’s a positive sign for economy and calms fears of a recession. This is especially important when manufacturing has been in decline. It could also put pressure on inflation.

Instead of sending stocks lower and yields higher, as stronger-than-expected data did much of last month, markets reacted in the opposite way.

From 4.06 percent on Thursday, the yield on the 10-year Treasury fell to 3.96 percent. This is a relief from the spike in yields over the past month, as investors expected a stronger Fed.

The services report contained some promising indicators for inflation. Although prices paid to services companies are still increasing, their growth has slowed in February.

“We started off the year with a delusional, deranged or even unhinged market rally that just made no sense at all,” Agati stated. “That delusion is still sitting in the background clearly, even though we are starting to get some of that reality check.”

Because of the stubborn inflation, she sees the Fed needing to raise interest rates. With corporate profits falling and her expectations for more declines due to a mild or moderate recession, she sees the stock markets grinding lower, before slowly rising, much like a bathtub.

“It’s going to be a more extended tightening cycle,” Agati stated. “Investors are so conditioned to high volatility and warp speed, they want everything to happen immediately. You see the market trying to price it in in one shot. It’s just going to take longer for the Fed to get out of the driver’s seat.”

The Fed’s next move on interest rates will be made later this month. Market expectations and market reactions to the Fed’s next move on interest rates will be influenced by reports about the strength of the labor market and inflation.

It slashed the rate increases by a quarter of a percent last month. This was a sign that there is progress in the fight to lower inflation. It had earlier indicated that just two more rate increases might be coming. The Fed has been criticized for not only raising rates at least three additional times, but could also increase them again.

All the worries have arrived, but corporate profits are expected to be lower. Big companies are suffering from high inflation and rising rates that continue to eat into their earnings. Particularly, retailers have said that they can see their customers in trouble.

Costco Wholesale announced Friday that it reported a higher profit for the third quarter than was expected but its revenue was below expectations. Its stock fell 2.1 percent.

Silvergate Capital shares, a bank that facilitates crypto-related businesses, rose sharply after more than half a year. The bank warned that it might not be able file its annual report to regulators on time earlier this week. This was despite crypto companies cutting off their business with it. “less than well-capitalized.” It closed the day at 0.9 percent after swinging between losses and gains.

Cooper Cos. was the winner, a medical device manufacturer that posted a higher profit and revenue than Wall Street had expected. It rose by 7.3 percent.

Broadcom saw a 5.5 percent increase in its share after surpassing expectations for quarterly revenue and profit.

S&P 500 rose 64.29 to 4,045.64. The Dow gained 387.40, to 33.390.97; the Nasdaq increased 226.02 and to 11,689.01.

By Stan Choe