NEW YORK -- Stocks rallied Friday to send Wall Street to its best day in six weeks.
The S&P 500 rose 1.6% to cap its first winning week in the last four as relaxing yields in the bond market took some pressure off Wall Street. It’s found some stability following a swift rise and fall to start the year.
The Dow Jones Industrial Average climbed 387 points, or 1.2%, while the Nasdaq composite jumped 2%.
The central guidepost moving markets recently has been where inflation is heading and what the Federal Reserve will do about it.
“I’d love to talk about other things, but the only things that matter are the Fed and trajectory of inflation,” said Amanda Agati, chief investment officer of PNC Asset Management.
Early in the year, Wall Street rallied on hopes that cooling inflation would get the Fed to take it easier on its hikes to interest rates. Such increases can drive down inflation by slowing the economy, but they also raise the risk of a recession later on and hurt prices for investments.
Last month, momentum swung and stocks fell after reports on the economy came in hotter than expected. They included data on the jobs market, consumer spending and inflation itself at multiple levels.
The strong data raised concerns about continued upward pressure on inflation. That forced Wall Street to abandon hopes for rate cuts this year and raise its expectations for how high rates would go.
On Friday, more data showed up to show the economy is in better shape than thought: Growth for services industries last month was a touch stronger than economists expected. That's a good sign for the economy and helps calms worries about an imminent recession, particularly when manufacturing has been struggling. But it also could add pressure on inflation.
Instead of sending stocks lower and yields higher, as stronger-than-expected data did much of last month, markets reacted in the opposite way.
The yield on the 10-year Treasury fell back to 3.96% from 4.06% late Thursday. It's a respite from its shot higher over the last month as expectations rose for a firmer Fed.
Underneath the surface of the services report were some potentially encouraging bits for inflation. Prices are still rising for prices paid by services organizations, but the growth decelerated in February.
“We started off the year with a delusional, deranged or even unhinged market rally that just made no sense at all,” Agati said. “That delusion is still sitting in the background clearly, even though we are starting to get some of that reality check.”
She sees the Fed having to take interest rates even higher than the market is expecting because of how stubborn inflation has been. With corporate profits on the way down, and her expectation for even more declines because of a mild to moderate recession, she sees the stock market grinding lower before plateauing for a while and then gradually rising again, reminiscent of the shape of a bathtub.
“It’s going to be a more extended tightening cycle,” Agati said. “Investors are so conditioned to high volatility and warp speed, they want everything to happen immediately. You see the market trying to price it in in one shot. It’s just going to take longer for the Fed to get out of the driver's seat.”
The next move by the Fed on interest rates is scheduled for later this month. Before then, reports on the strength of the job market and on inflation will likely have big impacts on the market and expectations for what the Fed will do.
Last month, it dialed down the size of its rate increases and highlighted progress being made in the battle to get inflation lower. It also earlier suggested just two more increases to rates may be on the way. But the strong reports since then have raised worries that the Fed could not only hike at least three more times but also could dial back up the size of the increases.
All the worries have come while expectations for corporate profits have been swinging lower. Still-high inflation and rates are eating into earnings for big companies. Retailers in particular have been saying they see some of their customers struggling.
Costco Wholesale on Friday reported stronger profit for its latest quarter than expected, but its revenue fell short of forecasts. Its stock fell 2.1%.
Shares of Silvergate Capital, a bank for crypto companies, swung sharply a day after more than halving. Crypto companies have been cutting off business with the bank, which warned earlier this week that it won't be able to file its annual report with regulators in time and that it could be “less than well-capitalized.” After swinging from losses to gains, it ended the day 0.9% higher.
On the winning side was Cooper Cos., a medical device maker that reported stronger profit and revenue than Wall Street expected. It climbed 7.3%.
Broadcom gained 5.5% after it also beat expectations for quarterly profit and revenue.
All told, the S&P 500 rose 64.29 points to 4,045.64. The Dow gained 387.40 to 33,390.97, and the Nasdaq jumped 226.02 to 11,689.01.
AP Business Writers Joe McDonald and Matt Ott contributed.