Wall Street rallies again, even as bond market signals worry

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Wall Street stocks rebounded again on Thursday, extending the market’s winning streak to a fourth day and putting major indexes on pace for weekly gains.

The Standard & Poor’s 500 index rose 1.5%. The latest gain marks the longest winning streak for the benchmark since March. The Dow Jones Industrial Average rose 1.1%, while the Nasdaq composite closed up 2.3%.

Shares of small companies outperformed the broader market, a sign that some investors remain confident in economic growth. The Russell 2000 rose 2.4%.

Most of the market rallied and energy companies led the way after oil prices recouped some of their steep losses from earlier in the week. However, the bond market is still showing signs of concern about a possible recession.

A report on Thursday showed more workers applied for unemployment benefits last week than expected. A report on Friday will show how the labor market is doing more broadly.

“We still see a host of macro headwinds that suggest a cautious approach is appropriate here,” said Bill Merz, head of capital markets research at US Bank Wealth Management.

The S&P 500 rose 57.54 points to 3,902.62 as about three-quarters of stocks in the index rose. The Dow rose 346.87 points to 31,384 and the Nasdaq rose 259.49 points to 11,621.35. The Russell 2000 advanced 42.06 points to 1,769.60.

Companies that benefit the most from a healthy economy led the gains, with tech stocks doing much of the heavy lifting. Apple rose 2.4%.

The energy sector also rose, with US crude oil prices rising 4.3% after falling in recent days. Exxon Mobil rose 3.2%.

“Energy prices have fallen on fears of a recession, along with a host of other industrial commodities,” said Quincy Krosby, chief equity strategist for LPL Financial. “Obviously, there are always worries about the economy, there are always worries about where we are going and whether the economic context will weaken.

Major indexes are on pace with weekly gains in what has been turbulent over the past few months. The volatility reflects growing investor concerns about the economy slowing under the weight of soaring inflation and sharply rising interest rates, pressures that could tip the economy into a recession.

Despite the rally in the stock market this week, bond investors continue to signal concern about a possible recession. New data on Thursday showed that the number of Americans applying for unemployment benefits surpassed the 230,000 mark for the fifth consecutive week. Although claims remain low, last week was the highest level of claims in nearly six months.

The 10-year Treasury yield rose to 3% from 2.91% on Wednesday night. The two-year Treasury yield is higher than the 10-year yield, a relatively rare occurrence seen by some investors as a bad omen.

The U.S. labor market has been the focus of investors’ concerns this week as they look for clues on how inflation is affecting the economy. On Wednesday, the US government announced that employers advertised fewer jobs in May amid signs of a weakening economy and there are already signs that retailers have hindered in hiring.

A weakening in the broader labor market, which has remained strong throughout the pandemic recovery, could signal that inflation is slowing. Investors will get a clearer picture on Friday when the more detailed June jobs report comes out.

“That’s what the Federal Reserve wants them to do, they actually think their policies are working because they’re increasing the slack in labor markets,” said Zachary Hill, head of portfolio management at Horizon Investments. . “As we look to tomorrow and consider how markets should read the report, seeing a deceleration in the pace of job growth is positive in a sense.”

Investors are trying to determine if a recession is on the horizon as the Fed aggressively raises interest rates to temper widespread inflation.

Businesses are squeezed by higher costs due to supply chain issues and have raised prices for various items including food and clothing.

Consumers have cut back on spending as inflation squeezes budgets. Russia’s invasion of Ukraine in February drove up energy prices, leading to record gasoline prices in the United States.

The main concern is that the Fed’s interest rate hikes could go too far in slowing economic growth and triggering a recession. After last month’s meeting, the Fed raised its rate by three-quarters of a point to a range of 1.5% to 1.75% – the biggest increase in nearly three decades – and signaled that further significant hikes would probably be needed.

Recession fears weigh heavily on the markets. Every major index is down for the year and the benchmark S&P 500 is in a bear market, or down 20% from its most recent high. The market is unlikely to regain ground until Wall Street receives clearer signals that inflation is slowing.

European markets rose on a day when British Prime Minister Boris Johnson announced that he was resigning in the middle a flood of resignations from members of his conservative party.

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