U.S. stock market today: Wall Street climbs and may hit an all-time high for the first time in 2 years

NEW YORK -- Wall Street is rising Friday and may break past its all-time high set two years ago, before the highest inflation and interest rates in decades sent financial markets tanking worldwide.

The S&P 500 was up 1.2 per cent at 4,835 in afternoon trading, on pace to surpass its record closing level of 4,796.56. The Dow Jones Industrial Average was up 429 points, or 1.1 per cent, as of 2:41 p.m. Eastern time, and the Nasdaq composite was 1.5 per cent higher.

Two financial companies, Travelers and State Street, were helping lead the market after reporting stronger profit for the end of 2023 than analysts expected. Travelers jumped 6.1 per cent, and State Street rallied 2.2 per cent.

Tech stocks were also strong for a second straight day after heavyweight chipmaker Taiwan Semiconductor Manufacturing Co. delivered a better forecast for revenue this year than analysts expected. Broadcom rose six per cent, and Texas Instruments climbed 4.6 per cent after announcing its dividend.

Companies in the S&P 500 are likely to report only slight growth in overall profits for the fourth quarter of 2023, if any, if analysts’ estimates are accurate. But optimism is higher for 2024. Inflation is cooling, and the U.S. economy has so far managed to avoid a recession earlier seen as inevitable by many investors.

Those factors, along with strong expectations for the U.S. Federal Reserve to cut interest rates sharply this year, are what have driven the S&P 500 to the brink of its record. It had earlier dropped as much as 25 per cent from its all-time high after inflation topped nine per cent to reach its most painful level since 1981.

The main medicine the Federal Reserve uses to break high inflation is high interest rates, which tighten the brakes on the entire economy by making borrowing more expensive.

With inflation down to 3.4 per cent, the big question on Wall Street now is how many times the Federal Reserve will cut rates this year and when it will begin. The Fed's main rate is at its highest level since 2001, and cuts would relax the pressure on the financial system and give a boost to investment prices.

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Yields have already tumbled since autumn on such expectations, helping to give the stock market a head start in its rally. After topping five per cent in October, the yield on the 10-year treasury dropped back below four per cent.

This week, though, yields recovered some of those losses after reports showed the economy remains stronger than expected. While such solid numbers keep worries about a recession at bay, they could also keep upward pressure on inflation.

That in turn has forced traders to drop some bets that the Fed will begin cutting rates as soon as March. The Fed has been hinting at fewer rate cuts this year than investors had been betting on.

“The truth is likely somewhere between what the Fed is saying and what the market is expecting” about when cuts will begin, said Brian Jacobsen, chief economist at Annex Wealth Management. “That will continue to cause dips and rips” for financial markets “until the two reconcile with each other.”

The 10-year yield edged up to 4.15 per cent from 4.14 per cent late Thursday.

Yields swiveled after a preliminary report suggested the mood among U.S. consumers is roaring higher. Sentiment may have jumped to its highest level since July 2021, according to the University of Michigan, which is important to markets because spending by consumers is the main driver of the economy.

Perhaps more importantly for the Fed, expectations for upcoming inflation among households seem to be anchored. A big worry for the Fed has been that such expectations could take off and trigger a vicious cycle that keeps inflation high.

A separate report said sales of previously occupied homes weakened in December, when economists were expecting improvement. The hope is that marks a bottom for the figure. If interest rates come down, so too could mortgage rates, which would help invigorate the industry.

On Wall Street, Spirit Airlines recovered some of its steep losses from earlier in the week. It rose 22.5 per cent after it said bookings for the peak holiday travel period were strong, and it expects to report fourth-quarter revenue at the high end of its earlier forecast.

The stock is nevertheless still down 57 per cent for the week after a federal judge blocked its purchase by JetBlue Airways out of worries it could lead to higher airfares.

Wayfair jumped 9.5 per cent after it said it would cut about 1,650 jobs, or 13 per cent of its workforce, to help it save more than $280 million annually.

On the losing end was PPG, even though the supplier of paints, coatings and other materials reported stronger profit for the end of 2023 than analysts expected. It fell 2.4 per cent after it also gave profit forecasts for the first three months of 2024 and for the full year that fell short of analysts’ expectations.

In stock markets abroad, Japan’s Nikkei 225 jumped 1.4 per cent to continue its strong gain since the start of the new year. Japan’s inflation rate slowed for a second straight month, upping the chance that the Bank of Japan may keep its ultra-low interest rates around a bit longer.