TOKYO – Stocks rose Friday to send Wall Street to its first winning week since July after the head of the Federal Reserve said it will “proceed carefully” as it decides what to do with interest rates.
The S&P 500 climbed 29.40, or 0.7%, to 4,405.71 after flipping between small gains and losses a few times through the day. The Dow Jones Industrial Average rose 247.48 points, or 0.7%, to 34,348.90, and the Nasdaq composite gained 126.67, or 0.9%, to 13,590.65.
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In a highly anticipated speech, Fed Chair Jerome Powell said again that it will make upcoming decisions on interest rates based on what incoming data reports say about inflation and the economy, and he made no promises about what's coming next.
Wall Street had the speech circled on calendars because it was hoping Powell would say the Fed was done with its hikes to interest rates, which grind down inflation at the cost of slowing the economy and hurting prices for investments.
Powell instead said the Fed may raise interest rates again, if needed. Even though inflation has come down from its peak last summer, Powell said it’s still too high.
But he also took care to say he’s aware of the risks of going too far on interest rates and doing “unnecessary harm to the economy." Altogether, the comments weren't very different from what Powell said before, analysts said.
But one word of Powell's stood out to Brian Jacobsen, chief economist at Annex Wealth Management, particularly as it relates to Powell's speech last year at the same Fed event. That 2022 speech caused stocks to fall sharply.
“Carefully is the new forcefully,” Jacobsen said. “Last year, Powell said the Fed would respond forcefully, and they sure did. Now they can tread carefully. Any adjustments to rates now will be more like fine tuning.”
The Fed has already hiked its main interest rate to the highest level since 2001 in its drive to grind down high inflation. That was up from virtually zero early last year.
The much higher rates have already sent the manufacturing industry into contraction and helped cause three high-profile U.S. bank failures during the spring. They've also helped to slow inflation, but a string of stronger-than-expected reports on the economy has raised worries that upward pressure remains. That could force the Fed to keep rates higher for longer.
Such expectations in turn vaulted the yield on the 10-year Treasury this week to its highest level since 2007. It ticked down to 4.23% from 4.24% late Thursday, though it's still up sharply from less than 0.70% three years ago.
High yields mean bonds are paying more in interest to investors. They also make investors less likely to pay high prices for stocks and other investments that can swing more sharply in price than bonds. Big Tech and other high-growth stocks tend to feel such pressure in particular.
The two-year Treasury, which more closely tracks expectations for the Fed, rose to 5.07% from 5.02% late Thursday. Traders see better than a 50% chance the Fed will hike its main interest rate again this year. That's up sharply from just a week ago, according to data from CME Group.
The threat of rates staying higher for longer has helped send stocks tumbling in August following what had been a gangbusters year. The S&P 500 is down 4% after soaring 19.5% through July.
The worries about rates staying higher for longer also overshadowed a blowout profit report on Thursday from Nvidia, which has become one of Wall Street’s most influential stocks. The chip maker again gave a stronger forecast for upcoming revenue than expected, giving hope that this year’s frenzy around artificial-intelligence technology may be warranted. The AI mania was a big reason the S&P 500 rose as much as it did earlier this year.
Marvell Technology, another company that’s been citing growth coming from AI, fell 6.6% Friday following its profit report. Its results were a touch higher than analysts expected. Its stock had already rallied nearly 55% coming into the day.
On the winning side of Wall Street, Gap rose 7.2% after the retailer reported stronger profit for the latest quarter than analysts expected, though its revenue fell just shy of forecasts.
In markets abroad, stock indexes were modestly higher in Europe after tumbling across much of Asia.
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AP Business Writers Yuri Kageyama and Matt Ott contributed.