Stocks mixed as Wall Street closes strong week; crypto falls

The S&P 500 rose 0.3% in afternoon trading after drifting between modest gains and losses. A day earlier, it soared 5.5% in what was its best day since the spring of 2020. The Dow Jones Industrial Average was down 201 points, or 0.6%, at 33,514, after surging more than 1,200 points a day earlier, while the Nasdaq composite was 1% higher, as of 12:22 p.m. Eastern time.

Markets got a boost after China relaxed some of its strict anti-COVID measures, which have been hurting the world’s second-largest economy. Hopes for more economic growth from China helped not only stocks but also oil prices to rise, with U.S. crude gaining 2.5% to $88.62 per barrel.

Thursday’s huge rally for Wall Street came after a report showed inflation in the United States slowed by more than expected last month. That raised hopes the worst of inflation may have finally passed and that the Federal Reserve can take a less aggressive path on raising interest rates, though economists cautioned high inflation could remain stickier than expected on the way down.

Hikes to such rates can cause a recession and drag down on stock prices. They’ve been the main reason for Wall Street’s struggles this year.

Perhaps just as important as how bad inflation is at the moment is how high U.S. households see it being in future years. That’s because too-high expectations could trigger a vicious cycle where people accelerate purchases and make other moves that inflame inflation further.

The Fed has said it follows such expectations closely and that preventing such a doom loop is one of the reasons it’s moved so aggressively on rate hikes. Inflation expectations have not gotten high enough to trigger panic at the Federal Reserve, and a preliminary report on Friday suggested they’re not moving very much.

The median expectation for inflation in the coming year among households rose to 5.1% from 5% a month earlier, according to a survey by the University of Michigan. Expectations for long-run inflation, meanwhile, ticked up to 3%. But that’s still within the same 2.9% to 3.1% range where they’ve been for 15 of the last 16 months.

“The consumer is laser-focused on inflation and they’re feeling it every day,” said Brian Price, head of investment management at Commonwealth Financial Network. “I wouldn’t expect that we see any upside with regard to consumer sentiment until inflation comes under control.”

The Fed has already lifted its key overnight interest rate to a range of 3.75% to 4%, up from basically zero in March. The likely scenario is still for it to hike further into next year, and then to hold rates at that high level for some time.

The hope for markets is that a softening in inflation could mean the Fed will hold the line at a lower, less painful level for markets than it would have otherwise.

“They’ve been pretty clear all along they were going to front-load the interest rate increases,” Price said. “They need some time to evaluate the data over the next few months.”

Traders are increasingly betting that the rate could top out around a range of 4.75% to 5% by early next year, according to CME Group. A week ago, they saw a higher ultimate rate as more likely, with a sizable chunk expecting something like 5.25% to 5.50%.

Bond markets are closed for trading in observance of Veterans Day. On Thursday, yields plunged as investors pared back their expectations for how aggressively the Fed will raise rates.

The S&P 500 is heading for its third weekly gain in the last four, and its rise of 5.2% is on track to be its biggest since June.

Companies that do a lot of business in China and around the region were particularly strong Friday following the relaxation of some anti-COVID restrictions. Wynn Resorts rose 6.4%, and Las Vegas Sands gained 6%.

Tapestry rose 7.6% and Ralph Lauren rose 6.9% to also help lead the S&P 500 higher. Both companies reported stronger profits for the latest quarter than expected.

On the losing end were health care companies. Cigna fell 10%, and Elevance Health dropped 7.4%.

In the crypto market, meanwhile, prices are sinking again amid the industry’s latest crisis of confidence. One of the bigger crypto trading platforms, FTX, filed for bankruptcy protection after its users began scrambling to pull out their money on fears about its financial strength.

The exchange and its founder are under investigation by the Department of Justice and Securities and Exchange Commission, and rivals have said FTX’s failure could dent confidence in the entire system.

Bitcoin fell to roughly $16,864, down 4.7% from a day earlier, according to CoinDesk. It set its record of nearly $69,000 almost exactly a year ago, and it was above $21,000 a week ago.

AP Business Writers Damian J. Troise, Joe McDonald and Matt Ott contributed.