NEW YORK – Wall Street closed higher on Thursday after a series of reports suggested the U.S. economy continued to do well, although rising inflation also lurked.
The S&P 500 rose 37.66 points, or 0.8%, to 4,505.10, its best day in two weeks. The Dow Jones Industrial Average rose 331.58 points, or 1%, to 34,907.11, while the Nasdaq gained 112.47, or 0.8%, to 13,926.05.
The main stock markets in Europe also rose after the European Central Bank raised its benchmark interest rate to a record level, although it also indicated that it will not be raised again for some time.
The increase should help reduce inflation in countries that use the euro as their currency, but it adds pressure to an economy that is already considered economically vulnerable.
France’s CAC 40 gained 1.2% and Germany’s DAX advanced 1%.
Indices also rose across much of Asia, with Japan’s Nikkei 225 gaining 1.4%.
The Treasury bond market is one of the most active, and its yields have seen significant improvements. Although the reports have raised expectations that the US economy will avoid a deep recession, the strength behind it could also generate inflationary pressure.
A report shows that American consumers spent more last month at retail establishments than economists had predicted. That level of spending has been key to the economy, but it could also encourage retailers to raise prices.
Strong spending is the result of an unusually strong labor market that has withstood a sharp rise in interest rates. A separate report said Thursday morning that fewer people than expected filed for unemployment benefits last week, implying a lower level of layoffs.
Wholesale prices rose last month more than economists expected, according to a third report. That could be a depressing sign for households if higher-than-estimated inflation is passed on to consumers.
To try to reduce inflation back to the 2% target, the Federal Reserve has been raising interest rates since early last year. The expectation on Wall Street is that the slowdown in inflation since last summer means the Fed will stop raising rates, a move that has slowed the economy.
Bond yields rose sharply after Thursday’s reports on fears they would push the Fed to raise rates again or at least keep them high for a longer period of time. But economists noted that most of the acceleration of wholesale inflation last month was due to the increase in fuel prices, which move quickly and strongly.
If those and other more volatile rates are ignored, headline inflation trends in Thursday’s report were closer to what economists had expected. That’s similar to a report the other day on consumer inflation that showed headline inflation accelerated to 3.7% in August due primarily to a jump in fuel prices.
After a series of ups and downs on the day, the yield on the 10-year Treasury bond rose from 4.25% to 4.29%. The 2-year bond yield, which more closely reflects the pattern of future Fed decisions, also rose after the reports: from 4.98% to 5%.
Brokers have reduced expectations that the Fed will raise rates again for the rest of the year, although they consider there is a 40% chance it will happen, according to data from the CME Group.
Expectations that the Fed may end up raising rates may be overblown, warned Mike Loewengart, director of portfolio construction at the Morgan Stanley Global Investment Office.
“The Fed is likely to hold off next week, but if the economy continues to deliver positive surprises, there’s no telling what to do after the last two policy meetings of the year,” he added.
For its part, shares of chip designer Arm Holdings rose 24.7% on their debut. The strong reception could be an encouraging sign for the initial public offering market, which has slowed since the stock market began to slide earlier this year on fears of higher interest rates. interest.
Shares of energy producers also rose on another rise in oil prices. Crude has been rising for months as producer countries try to support prices by cutting supply. A barrel of US crude once again topped $90, helping ExxonMobil shares to gain 1.8%, and Marathon Oil shares to gain 2.9%.
HP fell 1.8% after Warren Buffett’s Berkshire Hathaway revealed it was cutting its stake in the company. Berkshire still owns 115.5 million HP shares after selling 5.5 million this week.
Meanwhile, Delta Air Lines joined other airlines in lowering their profit forecast due to higher costs. Its shares fell 0.6%.