Wall Street is drifting higher Friday after reports showed a strong job market is giving workers bigger raises, but key parts of the economy still don't look like they're overheating.
The S&P 500 was 0.5% higher in morning trading, though it's still on track for its first losing week in the last 10. The Dow Jones Industrial Average was up 92 points, or 0.2%, as of 10:20 a.m. Eastern time, and the Nasdaq composite was 0.5% higher.
Treasury yields swung sharply in the bond market following a set of reports on the economy. 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 things that set prices for stocks.
But Wall Street’s worry is the strong data could also convince the Federal Reserve that upward pressure remains on inflation. That in turn could mean the Fed will hold interest rates high for longer than expected. That would be bad news for markets that have already rallied strongly on expectations the Fed will cut rates deeply this year. Interest rates affect the other big factor setting stock prices.
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. Perhaps just as importantly for markets, prices those businesses paid rose at a slower rate.
Following that report, traders quickly built bets back up for the Fed to begin cutting rates in March. They're now forecasting a 72% chance of that, up from 66% 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 eventually fell to 3.96%, down from 4.00% late Thursday. Low rates and yields help the economy by encouraging borrowing and spending. They also help prices for investments and ease the pressure on the financial system.
On Wall Street, Constellation Brands climbed 3.2% 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 3.4%, and Southwest Airlines gained 3%.
This week’s broad pullback for stocks is not a surprise for many on Wall Street, who had been calling its big run since autumn overdone. Critics say the number of rate cuts traders are betting on for 2024, which is double the three that the Federal Reserve has indicated, is unlikely unless a recession occurs.
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 straight 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.