Wall Street set for weekly gain as yields pull back

By Sruthi Shankar and Shristi Achar A

Traders work on the floor of the NYSE in New York

© Thomson Reuters
Traders work on the floor of the NYSE in New York

(Reuters) – U.S. stock indexes rose on Friday, on course for weekly gains, as Treasury yields took a breather from a week-long rally that was sparked by worries that the Federal Reserve would keep interest rates higher for longer to tame stubborn inflation.

Trading has been choppy this month after economic data pointed to rising raw material costs and a resilient labor market, signaling the U.S. central bank was yet to see the desired impact of its monetary policy tightening on inflation.

The U.S. 10-year Treasury yield fell on Friday after touching a four-month high in the previous session, but hovered near the 4% level.[US/]

The Institute for Supply Management’s survey showed the U.S. services sector grew at a steady clip in February, with new orders and employment rising to more than one-year highs, suggesting the economy continued to expand in the first quarter.

“The ISM (survey) arguably came in close to expectations, but it still signals growth,” John Augustine, chief investment officer at Huntington National Bank.

“To see long-term yields down today is a surprise, but recession fears seem to be receding and the expectation that the Fed will tighten hasn’t changed.”

U.S. stocks closed higher on Thursday after Atlanta Fed President Raphael Bostic said the impact of higher rates on the economy might only begin to “bite” in earnest this spring, an argument for the Fed to stick with “steady” quarter-point rate increases.

The three main indexes were set for weekly gains, with the Dow set for its first weekly rise in five.

Hawkish comments from Fed policymakers and recent economic data have pushed traders to price in at least three more 25 basis point rate hikes this year and see interest rates peaking at 5.46% by September from 4.66% at present.

The odds of a 50 basis point rate hike in March stood at just 20%, but investors are awaiting monthly payrolls and consumer prices data to see if the Fed will go big later this month.

The Fed is “acutely aware” of the challenges high inflation poses to the economy and is “strongly committed” to its 2% target, the central bank said in its latest semiannual report to Congress on monetary policy and the economy.

At 11:56 a.m. ET, the Dow Jones Industrial Average was up 221.75 points, or 0.67%, at 33,225.32, the S&P 500 was up 41.12 points, or 1.03%, at 4,022.47, and the Nasdaq Composite was up 148.13 points, or 1.29%, at 11,611.12.

The S&P 500 was trading above its 200-day moving average, seen as a key support level by traders, for a second session. 

Apple Inc rose 2.7% after Morgan Stanley said the stock could rally more than 20% this year on potential hardware subscription.

Meanwhile, Costco Wholesale Corp slipped 3.1% after the membership-only retail chain missed second-quarter revenue estimates, as consumers cut back on spending amid high inflation.

Broadcom Inc rose 4.8% after the chipmaker forecast second-quarter revenue above analysts’ estimates as increased investments in AI spurred demand for chips.

Advancing issues outnumbered decliners by a 3.83-to-1 ratio on the NYSE and 1.92-to-1 ratio on the Nasdaq.

The S&P index recorded 17 new 52-week highs and two new lows, while the Nasdaq recorded 59 new highs and 43 new lows.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Anil D’Silva and Shinjini Ganguli)