Adobe Stock
NEW YORK (AP) — Wall Street is strengthening on Monday to kick off a week full of updates on the two things that set stock prices: how much profit companies are making and where interest rates are heading.
The S&P 500 was 0.7% higher in early trading, on pace for another gain after it broke a five-day losing streak at the end of last week. Goldman Sachs helped lead stocks of financial companies to some of the bigger gains after it reported better profit for the spring than expected.
The Dow Jones Industrial Average was up 200 points, or 0.6%, at 31,488, as of 9:05 a.m. Central time, and the Nasdaq composite was 1.3% higher.
Markets have been lurching mostly lower for weeks on worries that the Federal Reserve and other central banks around the world will slam the brake too hard on the economy in hopes of bringing down high inflation. If they’re too aggressive with their interest-rate hikes, they could cause a recession.
But some on Wall Street are seeing signs for at least temporary optimism. Oil prices have come off their highs, though they rose about 4% Monday, and some traders are again saying inflation may be peaking following the latest report that showed another four-decade high. A key report last week showed expectations for inflation among households are easing, which could prevent a more vicious cycle from taking root.
Expectations have come down for how aggressively the Federal Reserve will raise interest rates at its meeting next week. Traders are now betting on a roughly one-in-three chance for a monster hike of a full percentage point, with the majority favoring a 0.75 percentage point increase. As recently as Thursday, the heavy bet was on a hike of a full point.
Across the Atlantic Ocean, investors expect the European Central Bank on Thursday to raise interest rates for the first time in 11 years to combat inflation. Many investors expect an increase of 0.25 percentage points, “but more is not unthinkable," economists wrote in a BofA Global Research report.
Interest rates are one of the two main levers that set prices for stocks. The other is corporate profits, which are under threat given high inflation and slowdowns in parts of the economy.
Goldman Sachs rallied 4.1% after it reported better profit and revenue for the latest quarter than analysts expected. Synchrony Financial rose 2.5% after it likewise topped forecasts for profit and revenue. Bank of America added 1.4% even though it fell short of analysts' profit expectations. Despite all the worries about a recession, Bank of America said its customers' spending and deposits remain strong.
IBM is set to report its results after trading closes. Johnson & Johnson, American Airlines and Netflix are all scheduled to follow later in the week. Nearly 15% of the companies in the S&P 500 are expected to report their results this week.
In markets overseas, Hong Kong’s Hang Seng index surged 2.7% after Chinese media reported that some stalled real estate projects had resumed construction after buyers threatened to stop their mortgage payments. The Shanghai Composite index added 1.6%.
Stocks also rose across much the rest of Asia and Europe, with Germany's DAX returning 0.9%.
AP Business Writer Elaine Kurtenbach contributed.