Stock Market Today: Wall Street Drifts After Another Inflation Report as Rate Concerns Remain

NEW YORK (AP) U.S. stocks are drifting Thursday, a day after falling on concerns that interest rates could remain high for some time.

The S&P 500 rose 0.2% in afternoon trading, following a 0.9% decline. The Dow Jones Industrial Average was down 138 points, or 0.3%, as of 1:01 p.m. Eastern Time, and the Nasdaq Composite Index was up 0.7%.

In the bond market, which has driven much of the action on Wall Street, Treasury yields have been mixed and kept pressure on the stock market. They eased early in the morning, then recovered following a series of mixed data on the U.S. economy and speculation about when the European Central Bank might cut interest rates. He kept his key rate stable after a meeting in Germany.

One of the biggest questions dominating Wall Street is when or if the Federal Reserve will make the U.S. interest rate cuts that traders are dreaming of. After starting the year predicting at least six rate cuts, traders have since significantly lowered their expectations. A series of warmer-than-expected reports on inflation and the economy have raised concerns that inflation's progress over the past year has stalled. Many traders now expect just two cuts in 2024, with some discussing the possibility of zero cuts.

A report released Thursday morning showed that inflation at the wholesale level was a little lower last month than economists expected. This is encouraging, but it also shows that underlying inflation trends were closer to forecasts, if not slightly higher. These figures do not take into account the effects of fuel prices and some other notoriously volatile prices, and economists say they can give a better idea of ​​where inflation is heading.

The update doesn't make up for Wednesday's disappointing report on U.S. consumer inflation, but it could ease investors' nerves, at least in the short term, said Chris Larkin, managing director of trading and investments at E-Trade at Morgan Stanley.

A separate report said fewer U.S. workers filed for unemployment benefits last week. It's the latest signal that the job market remains remarkably strong despite high interest rates.

There are growing concerns that stubbornly high inflation could tie the hands of the Federal Reserve, which had hinted it might cut rates three times in 2024. The Federal Reserve kept its main interest rate on hold at highest level since 2001 in the hope of reducing it. enough on the economy and investment prices to control high inflation. The fear is that rates that are too high for too long could cause a recession.

In fact, some investors are now warning that any rate cut by the Fed could be seen as a wake-up call more than anything else. They could come only if the economy and job market weaken enough to require an additional boost to the economy.

All of this comes at a time when critics were already calling the U.S. stock market too expensive after its jump of more than 20% since Halloween. For stock prices to appear more reasonable, without requiring sharp declines, either interest rates would need to fall or corporate profits would need to strengthen.

Earnings reporting season has just begun, as companies tell investors how much they earned in the first three months of the year. Analysts generally expect S&P 500 companies to post a third straight quarter of growth, according to FactSet.

The hidden reasons for profit growth could change, according to Bank of America strategists. Having previously focused on cost cuts and other measures aimed at squeezing more out of every dollar of revenue, the next stage of the profit-rising cycle will be led by stronger sales, Ohsung Kwon wrote and Savita Subramanian in a report from BofA Global Research.

CarMax suffered one of the biggest losses in the S&P 500 after reporting weaker earnings than analysts expected for its latest quarter. Rising interest rates on auto loans are making the sector more difficult, alongside tightening lending standards and low consumer confidence. Its stock slipped 11.5%.

Fastenal fell 6%. The distributor of fasteners and other industrial and construction supplies reported first-quarter profit and revenue slightly below analysts' expectations.

On the winning side of Wall Street is Rent the Runway, which more than doubled after reporting slightly better-than-expected revenue for its latest quarter. The company, which allows customers to rent designer clothing, also said it expects to break even based on its cash flow in the next financial year. Its stock soared 134%.

Constellation Brands rose 2.3% after reporting higher-than-expected profits for the three months through February. He cited solid growth for his Modelo Especial beer brand. He also gave a profit forecast for the next fiscal year that beat Wall Street expectations.

Alpine Immune Sciences soared 36.9% after Vertex Pharmaceuticals agreed to buy the biotechnology company for $4.9 billion in cash. Summit added 0.4%

On the bond market, the yield on 10-year Treasury bills rose from 4.55% Wednesday evening to 4.57%. The two-year yield, which more closely tracks expectations for Fed action, fell to 4.95% from 4.97%.

On foreign stock markets, indices fell slightly across Europe. Stocks were mixed in Asia, where South Korea's Kospi edged up 0.1% after the ruling conservative party suffered a crushing defeat in parliamentary elections.

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AP Business writers Matt Ott and Elaine Kurtenbach contributed.