Stocks closed mixed on Wall Street Monday in their first trading after a report heightened speculation the Federal Reserve may tap the brakes again on financial markets and the economy. The S&P 500 rose 4.09 points, or 0.1%, to 4,109.11. It did not trade on Friday, when data showing a resilient US jobs market heightened expectations the Fed would hike interest rates again at its next meeting. Big Tech stocks were worst off as bets built for the Fed to raise interest rates at its next meeting. The Nasdaq composite fell 3.60 points, or less than 0.1% to 12,084.36. But hope still remains that the economy may skirt a recession, which helped the Dow rise 101.23 points, or 0.3%, to 33,586.52. Stocks were catching up to the bond market, where yields rose Friday with expectations for a rate hike.
Higher rates tend to hit tech and other high-growth stocks the hardest, and Apple and Microsoft were two of the heaviest drags on the S&P 500, the AP reports. Apple fell 1.6% and Microsoft fell 0.8%. Traders are betting on a roughly 70% probability the Fed will raise its key overnight interest rate in May by 0.25 percentage points to a range of 5% to 5.25%, according to data from CME Group. A day before Friday’s jobs report, they saw a roughly coin flip’s chance that the Fed would stand pat at its next meeting.
While the jobs report raised expectations for another rate hike, it also showed a steady enough labor market to bolster hopes among some investors that the Fed could pull off what's called a "soft landing" for the economy. That's where the Fed succeeds in raising rates just enough to stifle inflation but not so much as to create a severe recession. The overriding bet within the bond market, though, seems to be that the economy will weaken so much that the Federal Reserve will have to cut rates as soon as this summer.
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Another report due on Wednesday could have a bigger impact on expectations for the Fed. That’s when the US government will release its latest monthly update on prices across the economy at the consumer level. Economists expect it to show inflation slowed last month but remains well above the Fed’s target. Also this week, earnings reporting season will begin for the biggest US companies. Delta Air Lines, JPMorgan Chase, and UnitedHealth Group will be among the first S&P 500 companies to tell investors how much profit they made during the first three months of the year. Expectations are low, and analysts are forecasting the sharpest drop in earnings per share since the pandemic pummeled the economy in the spring of 2020.
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