Wall Street experienced an increase on Thursday, driven by multiple reports indicating the strength of the U.S. economy. The S&P 500 had its best day in two weeks, rising 0.8%. The Dow Jones Industrial Average rose by 331 points or 1%, while the Nasdaq Composite Index increased by 0.8%. The bond market saw the most movement, with U.S. Treasury yields fluctuating throughout the day. These reports reinforce expectations that the U.S. economy will avoid a severe recession. However, there are concerns that the underlying strength of the economy may lead to increased inflation.
According to a report, U.S. shoppers spent more at retail stores last month than economists had predicted. This spending is crucial for the economy, but it could also result in retailers raising their prices. The strong spending is a result of the resilient job market, which has withstood significant rises in interest rates. Another report stated that fewer workers than anticipated filed for unemployment benefits last week, suggesting that layoffs remain low. Additionally, prices paid at the wholesale level increased more than expected in the previous month. If this higher inflation trickles down to consumers, it could be concerning for households. The Federal Reserve has been steadily raising interest rates to bring inflation back to its target of 2%.
Initially, there were concerns that Thursday’s report could prompt the Fed to raise interest rates or keep them high for a longer period of time. However, economists claim that the acceleration in wholesale inflation from soaring fuel prices may change direction rapidly, and that the underlying inflation trend is in line with expectations. The day saw the 10-year U.S. Treasury yield rise to 4.29% from Wednesday’s 4.25%. The two-year Treasury yield, which reflects expectations for the Fed more accurately, also increased. Traders have adjusted their expectations for another rate hike this year, but there are still around 40% odds, according to CME Group data.
Mike Loewengert, head of model portfolio construction at Morgan Stanley Global Investment Office, predicts that the Fed will continue raising rates, but warns of the possibility of going too far. In the stock market, Arm Holdings’ stock had a successful debut, rising by 24.7%. This positive reception may indicate encouraging prospects for the IPO market, which has slowed due to concerns about rising interest rates. Energy producer stock prices also increased as oil prices rose. Oil-producing countries have cut supply to support prices, leading U.S. crude oil to surpass $90 a barrel. However, HP fell by 1.8% as Berkshire Hathaway announced a reduction in its stake in the computer and printer company. Delta Air Lines also lowered its profit forecast, attributing higher costs to fuel and maintenance expenses, causing its shares to decline by 0.6%.
Overall, the S&P 500 rose by 37.66 points to reach 4,505.10. The Dow Jones Industrial Average increased by $331.58 to $34,907.11, and the Nasdaq rose by $112.47 to $13,926.05. European indexes also rose after the European Central Bank raised its interest rates. However, some comments suggested that rates would not continue to rise for an extended period. The rate hike aims to curb inflation in countries using the euro, but it may add pressure to an already at-risk economy. France’s CAC 40 rose by 1.2%, while Germany’s DAX increased by 1%. Asian indexes also saw rises, with Japan’s Nikkei stock average increasing by 1.4%.