NEW YORK (AP) – Wall Street is betting a little more on its stunning rise from the previous day in Friday morning trading, keeping it on track for a strong gain for the week.
The S&P 500 was up 0.6% in one day after rising 5.5% on its best day since spring 2020. The Dow Jones Industrial Average fell 41 points, or 0.1%, to 33,674 after rising more than 1,200 points a day earlier, while the Nasdaq Composite was 1.2% higher as of 10:21 a.m. Eastern Time.
Markets were boosted after China eased some of its strict anti-COVID measures, which have hurt the world’s second largest economy. Hopes of more economic growth from China not only pushed stocks but also oil prices, with US crude up more than 4% to over $90 a barrel.
Wall Street’s big rally on Thursday came after a report showed inflation in the United States had slowed more-than-expected Last month. That raised hopes that the worst of inflation may finally be over and that the Federal Reserve can take a less aggressive trajectory in raising interest rates, although analysts and economists have warned that high inflation could be more persistent on the downside than expected. Increases in such interest rates can trigger a recession and drag down stock prices.
Just as important as current inflation is how high US households expect it to be in the coming years. That’s because expectations that are too high could set off a vicious circle in which people accelerate their purchases and take other steps that only fuel inflation.
The Fed has stated that it closely monitors such expectations and that avoiding such an infinite loop is one of the reasons it has been aggressive in raising rates. Inflation expectations have been relatively high lately, but not so much as to cause panic in the Federal Reserve. A preliminary report on Friday indicated that US households are not changing expectations much.
According to a survey by the University of Michigan, average household inflation expectations rose to 5.1% in the coming year from 5% in the previous month. Meanwhile, expectations for long-term inflation rose to 3%. But that’s still within the same 2.9% to 3.1% range it’s been in 15 of the last 16 months.
The Fed has already raised its federal funds rate to a range of 3.75% to 4% from virtually zero in March. The likely scenario is still that it will continue to rise into next year and then hold rates at this elevated level for some time.
The hope for markets is that a slowdown in inflation could mean the Fed keeps the line at a lower, less painful level for markets than it otherwise would have done.
Traders are now increasingly betting that the price could reach a 4.75% to 5% range early next year, according to CME Group. A week ago, they saw a higher final rate as much more likely, with a sizable portion expecting somewhere around 5.25% to 5.50%.
Bond markets are closed for trading to mark Veterans Day. Yields fell on Thursday as investors scaled back expectations of how aggressively the Fed will hike rates.
The S&P 500 is heading for its third weekly gain in the last four, and its 5.5% gain is on track to be its biggest since June.
Meanwhile, in the crypto market, prices are falling again amid the industry’s recent crisis of confidence. One of the larger crypto trading platforms, FTX, has filed for bankruptcy after its users started hauling out their money fearing for its financial clout.
The exchange and its founder are under investigation by the Justice Department and the Securities and Exchange Commission, and competitors have said FTX’s failure could hurt confidence in the system as a whole.
Bitcoin fell below $16,900, down 4.6% from the previous day, according to CoinDesk. It set its record of almost $69,000 almost exactly a year ago and topped $21,000 a week ago.
AP business writers Joe McDonald and Matt Ott contributed.