NEW YORK (AP) — Wall Street is reeling from a day ahead of Friday morning trading, expecting strong gains for the week.
See: How interest rates affect bond and stock prices
The S&P 500 rose 0.6 percent on the day after rising 5.5 percent in its best day since spring 2020. The Dow Jones industrial average was down 41 points, or 0.1 percent, at 33,674, after rising more than 1,200 points on the day earlier, while the Nasdaq composite was down 1. It was up 2%, as of 10:21 a.m. ET.
Markets rose after China relaxed some of its strict anti-Covid measures that have been affecting the world’s second-largest economy. Hopes for more economic growth from China not only lifted stocks, but oil prices rose, with US crude up more than 4 percent to $90 a barrel.
Thursday’s big rally for Wall Street came after a report showed U.S. inflation slowed more than expected last month. That worst of inflation has finally passed and raised hopes that the Federal Reserve may take a less aggressive path to raising interest rates, although analysts and economists warned that high inflation may remain on the downward path longer than expected. A move to such rates could cause a downturn and cause the share price to decline.
How bad inflation is now is just as important as how high American households will see it in the years to come. That’s because too many expectations cause people to rush purchases and do other activities that make inflation worse.
The Fed said it closely follows such expectations and preventing such a doom loop is one of the reasons it has moved sharply on rate hikes. Inflation expectations have been high recently, but not to the point of triggering panic at the Federal Reserve. A preliminary report released on Friday found that American families are not moving very much toward those expectations.
According to a study by the University of Michigan, the average household inflation rate for the coming year is 5.1 percent compared to the previous month. Long-term inflation was expected to reach 3 percent. But that’s in the range of 2.9 percent to 3.1 percent in 15 of the past 16 months.
Read more: Analysis: Why the party in power has not been able to do much on inflation
The Fed raised its key interest rate overnight to 4 percent from 3.75 percent, from below zero in March. There is still a chance that it will probably move further into next year and then keep prices at a higher level for some time.
The hope for markets is that the decline in inflation means the Fed will hold its line lower than that and less painful for markets.
According to CME Group, traders are now adding that rates could rise by 4.75 percent to 5 percent by early next year. A week ago, they saw a higher final level, expecting something between 5.25 percent and 5.50 percent.
Bond markets are closed for trading in observance of Veterans Day. On Thursday, yields fell as investors turned back expectations of how aggressively the Fed would raise rates.
The S&P 500 is heading for its third weekly gain in the past four, and its 5.5 percent gain is on pace to be its biggest since June.
In the crypto market, prices are falling again amid the industry’s latest crisis of confidence. FTX, one of the largest crypto trading platforms, filed for bankruptcy protection after users began scrambling to withdraw their funds due to fears about its financial strength.
The exchange and its founder are under investigation by the Securities and Exchange Commission, and rivals say FTX’s failure could undermine confidence in the entire system.
According to CoinDesk, bitcoin fell below $16,900. It hit a record high of nearly $69,000 almost a year ago, and was over $21,000 a week ago.
AP Business writers Joe McDonald and Matt Ott contributed.