Stocks get a lift from new bets that Fed will hold rates steady in September
By Vicky Ge Huang
Stocks edged back from records Friday, with investors weighing weaker-than-anticipated economic data against an earnings season that has defied expectations.
Stocks initially opened higher Friday morning as investors interpreted unexpected weakness in consumer spending and sentiment as further evidence that the Federal Reserve won't raise interest rates at its September meeting. Coming on the heels of softer inflation data and a cooling labor market, the figures reinforced bets that the central bank will stand pat on rates.
The S&P 500 slid 0.2% after closing at a record Thursday. The Dow Jones Industrial Average lost 0.2%, or roughly 108 points. The tech-focused Nasdaq retreated 0.3%.
Futures traders are pricing in a nearly 70% chance that the Fed will hold interest rates steady next month, up from 56% a week ago, according to CME Group data.
Shares turned lower midmorning. Some investors cautioned that, despite the dwindling threat of an immediate rate increase, the continuing Middle East conflict and still-elevated oil prices could stall stock gains in the weeks ahead, especially as earnings season comes to an end.
"Rate hikes are off the table, but rate cuts are also off the table," said Jay Hatfield, chief executive officer and portfolio manager at Infrastructure Capital Advisors. "We need rate cuts to really fuel the S&P to our target of 9000. Otherwise, we'll probably stall out in the low 8000s."
For the week, the S&P 500 ticked higher by 0.4%, the benchmark's third consecutive weekly gain. The Dow fell 0.6%, and the Nasdaq was up 0.1%.
Treasury yields, which rise when bond prices fall, ticked higher. The 10-year Treasury yield, which influences borrowing costs across the economy, advanced to 4.695%.
Still, some investors believe that the bull market has further room to run, underpinned by an earnings season that has defied expectations. The earnings growth rate for companies in the S&P 500 recently stood at about 50% for the second quarter, which would mark the highest growth since the second quarter of 2021, according to FactSet data blending projections and actual results.
"The earnings are about as good as we've ever seen. The breadth of the strength is incredibly wide. Plus, you have this almost built-in buy-the-dip mentality of investors," said Mark Hackett, chief market strategist at Nationwide. "That's a really good sign for bulls."
In corporate news, Reddit surged 13% after S&P Dow Jones Indices announced on Thursday that the social-media platform will join the S&P 500, replacing AvalonBay Communities, a real-estate investment trust that is being bought by fellow S&P 500 member Equity Residential.
Shares of Applied Materials fell 5% after the semiconductor-equipment maker reported higher third-quarter net income and increased revenue, but failed to impress investors.