Stock market today: Wall Street hits record high following a 2-year round trip scarred by inflation
NEW YORK ( Web News )
Wall Street returned to record heights Friday to cap a punishing, two-year round trip dogged by high inflation and worries about a recession that seemed inevitable but hasn’t arrived.
The S&P 500, which is the main measure that professional investors use to gauge Wall Street’s health, rallied 1.2% to 4,839.81. It erased the last of its losses since setting its prior record of 4,796.56 at the start of 2022. During that time, it dropped as much as 25% as inflation soared to levels unseen since Thelonious Monk and Ingrid Bergman were still alive in 1981.
Even more than high inflation itself, Wall Street’s fear was focused on the medicine the Federal Reserve traditionally uses to treat it. That’s high interest rates, which press the brakes on the economy by making borrowing more expensive and hurting prices for stocks and other investments. And the Fed rapidly hiked its main interest rate from virtually zero to its highest level since 2001, in a range between 5.25% and 5.50%.
After shooting higher as snarled supply chains caused shortages because of COVID-19 shutdowns, inflation has been cooling since its peak two summers ago. It’s eased so much that Wall Street’s biggest question now is when the Federal Reserve will begin moving interest rates lower.
Treasury yields have already relaxed significantly on expectations for rate cuts, and that helped the stock market’s rally accelerate sharply in November. The yield on the 10-year Treasury slipped Friday to 4.13%, down sharply from the 5% that it reached in October, which was its highest level since 2007.
Of course, some critics say Wall Street has gotten ahead of itself, again, in predicting how soon the Federal Reserve may begin cutting interest rates.
“The market is addicted to rate cuts,” said Rich Weiss, chief investment officer of multi-asset strategies at American Century Investments. “They just can’t get enough of it and are myopically focused on it.”
Repeatedly since the Fed began this rate-hiking campaign early in 2022, traders have been quick to forecast an approaching easing of rates, only to be disappointed as high inflation proved to be more stubborn than expected. If that happens again, the big moves higher for stocks and lower for bond yields may need to revert.
“The truth is likely somewhere between what the Fed is saying and what the market is expecting,” said Brian Jacobsen, chief economist at Annex Wealth Management. “That will continue to cause dips and rips” for financial markets “until the two reconcile with each other.”
Some encouraging data came Friday after a preliminary report from the University of Michigan suggested the mood among U.S. consumers is roaring higher. It said sentiment jumped to its highest level since July 2021. That’s important because spending by consumers is the main driver of the economy.
Perhaps more importantly for the Fed, expectations for upcoming inflation among households also seem to be anchored. A big worry has been that such expectations could take off and trigger a vicious cycle that keeps inflation high.
Friday’s lift for Wall Street came with a big boost from technology stocks, something that’s become typical in its run higher.
All told, the S&P 500 rose 58.87 points to its record. The Dow Jones Industrial Average set its own record a month earlier, and it gained 395.19, or 1.1%, Friday to 37,863.80. The Nasdaq composite jumped 255.32, or 1.7%, to 15,310.97.
Last year, a select few Big Tech companies were responsible for the wide majority of the S&P 500’s gains. Seven of them accounted for 62% of the index’s total return, according to S&P Dow Jones Indices.
Many of those stocks — Microsoft, Apple, Alphabet, Nvidia, Amazon, Meta Platforms and Tesla — rode a furor in the market around technology related to artificial intelligence. The hope is AI will lead to a boom in profits, both for companies using it and for companies providing the hardware for it.
Investors may have wished they had stayed in just those stocks, which got the nickname of “the Magnificent 7.” But some of them remain below their record highs, such as Tesla. It’s still down 48% from its all-time high set in November 2021.
Including dividends, investors with S&P 500 index funds already returned to break-even a month ago.
Of course, risks still remain for investors. Besides uncertainty about when the Fed will begin cutting interest rates, it’s also still not a slam dunk that the economy will avoid a recession. Hikes to interest rates take a notoriously long time to make their way fully through the system, and they can cause things to break in unexpected places within the financial system.