Wall Street’s latest winning week closed with a mixed finish on Friday following stronger profit reports than expected from several big U.S. companies.
The S&P 500 slipped 4.62, or 0.1%, to 4,505.42 to edge back from its highest closing level since April 2022. The Dow Jones Industrial Average rose 113.89, or 0.3%, to 34,509.03, and the Nasdaq composite fell 24.87, or 0.2%, to 14,113.70.
Insurance giant UnitedHealth Group rallied 7.2% after it said profit growth during the spring was better than feared. It also raised the bottom end of its forecast for earnings for the full year.
JPMorgan Chase rose 0.6% after it said its profit during the spring grew by more than expected thanks in part to its acquisition of the troubled First Republic Bank. It had been up more in the morning, but it faded through the day like the broader market. Wells Fargo likewise swung to a drop of 0.3% from an earlier gain after reporting stronger profit for the second quarter than expected.
Helping to drag down Wall Street was State Street, which dropped 12.1% after reporting slightly weaker revenue than expected for the latest quarter, though its profit topped forecasts.
The earnings reporting season is just getting underway, and Wall Street’s expectations are low. Analysts are forecasting the worst drop in earnings per share for S&P 500 companies since the spring of 2020. If they’re right, it would also mark a third straight quarter where profits sank.
Such expectations are key for financial markets because one of the biggest factors that set a stock’s price is how much profit a company produces. Wall Street nevertheless rallied hard this week and closed out its seventh winning week in the last nine because of rising optimism for the other major lever that sets stock prices: how much investors are willing to pay for each $1 of corporate profits.
Two reports earlier this week showed that inflation continued to cool across the U.S. economy in June. That bolstered investors’ hopes that the Federal Reserve is close to feeling comfortable enough to halt its blistering campaign to raise interest rates.
The Fed has already hiked its federal funds rate to a range of 5% to 5.25%, up from virtually zero early last year. High rates undercut inflation by slowing the economy and putting downward pressure on prices for stocks and other kinds of investments.
The expectation is still for the Fed to raise rates one more time at its next meeting in two weeks. But traders are largely betting on that being the final hike of the cycle.
Treasury yields rose Friday, paring some of their sharp tumble from earlier this week caused by traders paring bets for Fed rate hikes later this year.
The 10-year Treasury yield rose to 3.82% from 3.77% late Thursday. But it’s still well below the 3.98% it sat at late Tuesday before the inflation reports were released. The 10-year yield helps set rates for mortgages and other important loans.
The two-year Treasury yield more closely tracks expectations for Fed action, and it’s at 4.73%, down from 4.89% late Tuesday.
Yields rose after a report on Friday suggested consumers are feeling much better about the economy thanks to slower inflation and a still-solid job market. A preliminary reading on a University of Michigan survey showed consumer sentiment at its highest level since September 2021, though lower-income consumers weren’t feeling as positive.
Solid spending by U.S. consumers has been one of the main pillars keeping the economy out of a recession. They’ve kept spending despite high-interest rates as employers have continued to hire more workers.
The survey also suggested consumers aren’t raising their expectations for upcoming inflation much. The Federal Reserve has been adamant about wanting to avoid a vicious cycle where expectations for high inflation drive behaviour that only worsens it.
The big recent gains for stocks on Wall Street have some critics cautioning investors not to get carried away by hopes for what’s called a “soft landing,” where high inflation can be vanquished without a painful recession.
“US data has undoubtedly been encouraging, and the Federal Reserve’s likelihood of staging a soft landing improves with every data point demonstrating resilient growth and falling inflation,” said Solita Marcelli, chief investment officer Americas for UBS Global Wealth Management.
But she said she still prefers safer, high-quality bonds over stocks in part because stock prices have climbed so quickly and set the bar higher for performance in the second half of the year. She also said growth for the U.S. economy could still fall close to zero later this year, even as inflation eases.
Hopes for an easier Fed also helped stocks worldwide to strengthen this week, though markets abroad were mixed on Friday.
AP Business Writer Yuri Kageyama contributed.
Stan Choe, The Associated Press