TOKYO – Wall Street closed its worst week since Halloween with a listless Friday after reports showed workers are getting bigger raises, but key parts of the economy still don’t look like they’re overheating.
The S&P 500 rose 8.56 points, or 0.2%, to 4,697.24 after drifting between small gains and losses through the day. It capped the first down week for the index in the last 10, after it roared into 2024 on hopes that inflation and the overall economy are cooling enough for the Federal Reserve to cut interest rates sharply through the year.
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The Dow Jones Industrial Average rose 25.77, or 0.1%, to 37.466.11 and inched closer to its record set earlier in the week. The Nasdaq composite added 13.77, or 0.1%, to 14,524.07.
Treasury yields swung sharply in the bond market following the economic reports. They initially climbed after the latest monthly jobs report showed U.S. employers unexpectedly accelerated their hiring last month. Average hourly pay for workers also rose, when economists had been forecasting a dip.
Such strong numbers are good news for workers, and they should keep the economy humming. That’s a positive for corporate profits, which are one of the main factors that set prices for stocks.
But Wall Street’s worry is the strong data could also convince the Federal Reserve upward pressure remains on inflation. That in turn could mean the Fed will hold interest rates high for longer than expected. Interest rates affect the other big factor setting stock prices, with high ones hurting financial markets.
The jobs report briefly forced traders to push out their forecasts for when the Fed could begin to cut rates. But a report later in the morning showed that growth for finance, real estate and other companies in the U.S. services industries slowed by more than economists expected last month.
Following that report, traders quickly built bets back up for the Fed to begin cutting rates in March. They’re now forecasting a nearly two-in-three chance of that, similar to a day earlier, according to data from CME Group.
Altogether, the data could bolster Wall Street's building hopes for a perfect landing for the economy, one where it slows just enough through high interest rates to stamp out high inflation but not so much that it causes a recession.
After climbing as high as 4.09% immediately after the jobs report, the yield on the 10-year Treasury fell to back to 3.96% following the weaker-than-expected report on services industries. It eventually pulled back to 4.04%, compared with 4.00% late Thursday.
On Wall Street, Constellation Brands climbed 2.1% after the seller of Corona and Modelo beers in the United States reported stronger profit for the latest quarter than analysts expected.
Travel-related companies were also strong and clawing back more of their losses from earlier in the week. Carnival rose 2.8%, and American Airlines gained 3.9%.
On the losing end was Apple, whose 0.4% dip Friday sent it to a 5.9% loss for the week, its worst since September. It's a sharp turnaround from last year, when the market's most influential stock soared more than 48%.
This week’s broad pullback for stocks was not a surprise for many on Wall Street, who had been calling its big run since autumn overdone. Critics say the six rate cuts traders are betting on for 2024 is unlikely unless a recession occurs. The Fed itself indicated in its latest summary of economic projections, or SEP, that three cuts may be more likely.
“Many who assume that the Fed will need to move faster and more aggressively than its SEP projections or recent statements likely received a dose of reality this week,” said Rick Rieder, chief investment officer of global fixed income at BlackRock. “Things are cooling, but in a more moderate way than historically, similarly to the weather these days. There are spurts of faster cooling in some areas, but generally nothing that people should panic about, or aggressively seek shelter from.”
In stock markets abroad, indexes were mostly lower in Europe after data showed showed inflation rose to 2.9% in December. The rebound after seven monthly declines fueled debate over how soon the European Central Bank could cut its own interest rates.
Indexes were also lower across much of Asia. Japan's Nikkei 225 was an exception and rose 0.3%.
Japanese exporters are betting a boost from the falling value of the yen against other currencies. The yen has weakened in recent days amid speculation the Bank of Japan might go slowly on changing its ultra-aggressive policy on interest rates following Monday’s major earthquake in central Japan.
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AP Business Writers Yuri Kageyama and Matt Ott contributed.