Stock market today: S&P 500 flirts with its record after inflation slows

NEW YORK (AP) — U.S. stocks are rising Wednesday with hope that inflation is heading back in the right direction, and the S&P 500 is flirting with its record set a month and a half ago. But a stall in spending by U.S. households tired after years of high inflation is keeping the gains in check.

The S&P 500 was 0.5% higher in morning trading. The Nasdaq composite was adding to its own record set a day earlier, up 0.5%, and the Dow Jones Industrial Average was up 134 points, or 0.3%, as of 10:15 a.m. Eastern time.

Relief was coming from the bond market, where Treasury yields eased to release some of the pressure on the stock market. The moves resulted from rising expectations among traders that the Federal Reserve may indeed cut its main interest rate this year.

Stocks that tend to benefit the most from lower interest rates led the market. Real-estate stocks in the S&P 500 jumped 1.5%, while utility stocks rose 1.4%. Their dividend payments look better to investors when bonds are paying less in interest. Homebuilders were also strong on hopes that cuts by the Fed would lead to easier mortgage rates, with Lennar and D.R. Horton both up at least 2.9%.

The optimism came from a report showing U.S. consumers had to pay prices for gasoline, car insurance and everything else in April that were 3.4% higher overall than a year earlier. While that’s painful, it’s not as bad as March’s inflation rate of 3.5%.

Perhaps more importantly, the slowdown was a relief after reports for the consumer price index, or CPI, earlier this year had consistently come in worse than expected. That string of disappointing data had washed out forecasts for the Federal Reserve to soon lower its main interest rate, which is sitting at its highest level in more than two decades.

A cut in rates would help goose investment prices and remove some of the downward pressure on the economy.

“There was a lot lying on today’s CPI print to prove that disinflation was simply delayed these last three months and not derailed,” according to Alexandra Wilson-Elizondo, co-chief investment officer of the multi-asset solutions business in Goldman Sachs Asset Management.

A separate report showed spending at U.S. retailers was flat in April from March. It was a weaker showing than the 0.4% growth economists expected.

Slowing retail sales could be seen as a positive for markets, because it could reduce the upward pressure on inflation. But a stalling out also raises worries about cracks forming in U.S. consumer spending, which has been one of the main pillars keeping the economy out of a recession. Pressure has been particularly high on lower-income households.

“Hopefully the consumer isn’t running out of steam, but with pandemic savings spent, rising delinquencies, slower wage growth, and now flat retail sales, a more abrupt slowing of the economy can’t be ruled out,” said Brian Jacobsen, chief economist at Annex Wealth Management.

That would threaten one of the main hopes keeping the U.S. stock market near its record levels: The Federal Reserve can pull off the balancing act of slowing the economy enough through high interest rates to snuff out high inflation but not so much that it causes a bad recession.

A separate discouraging report released in the morning, meanwhile, said manufacturing in New York state is contracting more than expected.

On Wall Street, Petco Health + Wellness was helping to lead the market after jumping 12.3%. It named Glenn Murphy, who is CEO of investment firm FIS Holdings, as its executive chairman.

On the losing end were GameStop and AMC Entertainment, as momentum reverses following their jaw-dropping starts to the week. GameStop fell 30.1% to trim its gain for the week to just below 95%.

AMC Entertainment fell 22.9% after it said it will issue nearly 23.3 million shares of its stock to exchange for $163.9 million in debt that it owes.

In the bond market, the yield on the 10-year Treasury eased to 4.38% from 4.45% late Tuesday. The two-year yield, which moves more closely with expectation for Fed action, sank to 4.76% to from 4.82%.

Traders are now forecasting a nearly 93% probability that the Fed cuts its main interest rate at least once this year, according to data from CME Group. That’s up from 89.7% a day before.

In stock markets abroad, indexes were mixed. Stocks fell 0.8% in Shanghai after China’s central bank left a key lending rate unchanged.

AP Writers Matt Ott and Zimo Zhong contributed.