Wall Street climbs to add more to its strong January

NEW YORK (AP) – Wall Street wrapped up a strong January with more gains. The S&P 500 rose 1.5% on Tuesday, marking its third month of gains in the past four. The Dow was up 1.1% and the Nasdaq was up 1.7%. The gains came ahead of what many investors are hoping will be one of the Federal Reserve’s last rate hikes for a while. Markets were buoyed after a report showed that growth in workers’ wages and benefits slowed in late 2022. While this is frustrating for people trying to keep up with rising prices, markets are taking it as an encouraging sign that inflationary pressures are easing.

THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.

NEW YORK (AP) – Wall Street wraps up a strong January with more gains on Tuesday, ahead of many investors hoping this will be one of the last rate hikes by the Federal Reserve for a while.

The S&P 500 was up 1% and on course to end its third month of gains in the last four. The Dow Jones Industrial Average was up 209 points, or 0.6%, to 33,926 as of 2:59 p.m. Eastern Time, and the Nasdaq Composite was up 1.3%.

Markets were buoyed after a report showed growth in wages and benefits for US workers slowed in late 2022. While this is frustrating for people trying to keep up with higher egg and other food prices, markets are seeing it as an encouraging sign that inflationary pressures are easing.

With the pace of inflation slowing since the summer, virtually all of Wall Street is expecting the Federal Reserve to announce the smallest rate hike since March of 0.25 percentage point on Wednesday. That would be the latest move down after posting four straight increases of 0.75 points and then a 0.50 point increase.

Such moves attempt to stamp out inflation by deliberately slowing the economy and dragging down the prices of stocks and other investments. The concern is that interest rates that are too high would cause a deep recession and a fall in corporate profits.

Such worries, combined with hopes of a looser Fed, have caused markets to fluctuate wildly of late. Not only did they strike day after day, but also hour after hour. Analysts say much of last month’s gains were due more to improving sentiment among investors than to any major improvement in the economy or earnings.

“As long as the Fed is raising rates, you’re going to have market volatility,” said Mary Ann Bartels, chief investment strategist at Sanctuary Wealth.

“This is a very bipolar market,” she said. “And that’s actually healthy for a market. You don’t want one skewed too bullish,’ or bullish, and you don’t want one skewed too bearish,’ or bearish. “I think we’re leveling out this extreme bearishness in the market.”

She sees stocks continuing to rise throughout the year, particularly led by energy and industrials companies, although a simple look at market indices like the S&P 500 might hide that since these stocks are relatively small parts of the market.

With everyone seemingly on the same page as to what the Fed will do on Wednesday, the big question is what comes after. The Fed has so far pledged to keep interest rates high for longer to ensure inflation is truly defeated. Meanwhile, markets are optimistic that there could be only a small hike in March and that rate cuts could follow later in the year.

Other reports on the economy came in lower-than-expected on Tuesday, which could give the Federal Reserve room to tighten interest rates. Some levels of consumer confidence weakened in January when economists expected it to remain unchanged. And a measure of business activity in the Midwest showed more weakness than expected for January.

Treasury yields fell immediately after the release of the Employment Costs report before moderating their declines. The 10-year Treasury yield, which helps set interest rates on mortgages and other loans, slipped to 3.53% from 3.54% late Monday. The two-year yield, which is in line with expectations for the Fed, fell to 4.21% from 4.24%.

Earnings season is also in full swing, with McDonald’s and other big companies making headlines for the day. They offered a similarly mixed picture as so far this reporting season.

McDonald’s fell 1.6% even though earnings and sales came in ahead of analysts’ expectations. What may have disappointed Wall Street was McDonald’s forecast for future profit margins. They could indicate inflation, and cost pressures could continue to weigh on the company.

Caterpillar fell 3.9% after reporting weaker-than-expected earnings but higher sales.

On the positive side was General Motors, which rose 7.7% after reporting stronger-than-expected earnings and revenue.

Equity markets in Asia mostly closed lower and European markets closed mixed.

In a positive sign, the IMF said the outlook for the global economy has brightened somewhat as China eases its zero-COVID policy and economies are surprisingly resilient amid high inflation, elevated interest rates and Russia’s ongoing war with Ukraine.

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AP business writers Yuri Kageyama and Matt Ott contributed.

Stan Choe, The Associated Press