By Stan Choe
Stocks drifted to a mixed close as Wall Street stays in a holding pattern ahead of a potentially big week. The S&P 500 edged up 0.1% Monday after coming off its first winning week in the last four. Treasury yields were holding steady following big recent moves higher. The stock market has found some footing over the last week after a roller-coaster start to the year where a swift rise gave way to a sharp tumble. At the center of it all has been high inflation and expectations for what the Federal Reserve will do about it.
THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.
NEW YORK (AP) — Stocks are drifting in mixed trading Monday as Wall Street stays in a holding pattern ahead of a potentially big week.
The S&P 500 was 0.1% higher after coming off its first winning week in the last four. The Dow Jones Industrial Average was up 7 points, or less than 0.1%, at 33,398, as of 3:05 p.m. Eastern time, while the Nasdaq composite was virtually unchanged.
The stock market has found some footing over the last week after a roller-coaster start to the year where a swift rise gave way to a sharp tumble. At the center of it all has been high inflation and expectations for what the Federal Reserve will do about it.
Early in the year, stocks rallied and bond yields eased as hopes rose that cooling inflation would get the Fed to take it easier on its hikes to interest rates. Then, stronger-than-expected reports on the economy raised worries that inflation is not cooling as smoothly as hoped.
While that calmed worries about an imminent recession, it also forced Wall Street to raise its forecasts for how high the Fed will take interest rates. Higher rates can drive down inflation, but they also hurt prices for stocks and other investments and can create a recession in the future.
On Monday, Treasury yields were holding relatively steady following their own roller-coaster movements this year. The yield on the 10-year Treasury was at 3.97% after topping 4% last week and reaching its highest level since November. It helps set rates for mortgages and other loans that are central to the economy’s strength.
On Wall Street, technology stocks were some of the market's strongest. They tend to be some of the biggest beneficiaries of lower interest rates, which can boost demand by investors for high-growth companies.
Apple rose 2.1%, and Microsoft gained 0.8% to be the two biggest forces lifting the S&P 500.
More action may be ahead later this week, with several potentially market-moving events on the calendar.
Fed Chair Jerome Powell will testify before Congress for two days, beginning on Tuesday. Other Fed officials' comments recently have led to big swings in markets, as traders try to get ahead of the next moves by the Fed.
Brian Jacobsen, senior investment strategist at Allspring Global Investments, isn't expecting anything surprising to come from the testimony. That's partly because an important data release will follow his testimony later in the week on Friday, one that could by itself cause a big swing in the Fed's thinking.
That’s when the government will release its latest monthly jobs report. If the reading it stronger than expected, particularly if it shows big gains in wages, it could shake Wall Street and force it to raise rate expectations even higher.
The Fed has been trying to cool growth in wages to remove pressure on inflation, which remains far above its 2% target, and blowout figures could cause it to get more aggressive about rates.
The Fed’s next move on rates will arrive later this month. Besides Friday’s jobs report, upcoming releases on inflation across the economy will likely also carry a lot of weight on the decision.
The Fed has pulled its key overnight rate to a range of 4.50% to 4.75%, up from virtually zero at the start of last year, in its fastest set of hikes in decades. Last month, it dialed down the size of its 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 that was before last month’s string of hotter-than-expected data on inflation and other measures of the economy. Wall Street now is bracing for at least three more hikes and the possibility the Fed could also ratchet the size of the increases back up.
“My view is I don't think they need to hike anymore,” said Jacobsen, who said he sees last month's economic data as more a bump in the road for the downward trend of inflation than a shift in momentum.
“The real objective would be to try to hold at a cruising altitude for as long as possible. The higher they go, the sooner they will likely find they will want to cut rates.”
That's because rate hikes can take a long time to filter through the economy and have their full effects felt. Some parts of the economy, including housing and manufacturing, have already felt pain because of higher rates. The services side of the economy, meanwhile, is still cruising.
Jacobsen thinks the economy may be heading for a relatively short and shallow recession. But all the recent strength in the economy also has him thinking the economy may be in the midst of a rolling recession, where some parts are weakening while other parts remain strong enough to keep the overall whole just out of the grasp of a total recession.
Stock markets abroad were mostly higher.
Expectations for inflation globally eased a bit after China said it’s targeting economic growth of about 5% as it tries to rebuild business activity following the end of anti-virus controls that kept millions of people at home. That came in below some forecasts, which could mean less upward pressure on inflation.
AP Business Writers Elaine Kurtenbach and Matt Ott contributed.