Stocks rise on Wall Street, but remain down for the week

NEW YORK (AP) — Stocks rose in afternoon trading on Wall Street Friday following an encouraging report on consumer sentiment and inflation expectations.

A July survey from the University of Michigan showed that inflation expectations have held steady or improved, along with general consumer sentiment. It was a welcome update following several government reports this week that showed consumer prices remained extremely hot in June, along with wholesale prices for businesses.

The report also bodes well for investors looking for signs that the Federal Reserve might eventually ease off its aggressive policy to fight inflation.

The S&P 500 rose 1.6% as of 12:25 p.m. Eastern. The gains still weren't enough to pull stocks out of the red for the week and the benchmark index is still headed for a 1.2% drop.

The Dow Jones Industrial Average rose 547 points, or 1.7%, to 31,177 and the Nasdaq rose 1.3%.

Banks and healthcare companies made some of the biggest gains. Unitedhealth Group rose 5.2% after raising its profit forecast for the year following a strong earnings report. Citigroup rose 10.7% after reporting encouraging financial results.

Bond yields fell. The yield on the 10-year Treasury slipped to 2.91% from 2.96% late Thursday. The yield on the two-year Treasury, which had been rising prior to the release of the latest report on consumer sentiment, fell to 3.10% from 3.13% late Thursday.

Inflation and its impact on businesses and consumers remains a key focus for Wall Street. The Federal Reserve has been raising interest rates in an effort to hit the brakes on economic growth, and curtail rising inflation. The Fed has already raised rates three times this year.

Wall Street has been worried that the Fed could go too far in raising rates and actually bring on a recession. Investors have been closely watching economic reports for clues as to how the central bank might react and the latest upbeat consumer sentiment report raises the chance of the Fed softening its current policy.

Investors are worried that the Fed could raise interest rates too aggressively and hit the brakes on economic growth so hard that it brings on a recession. Easing up on rate increases could reduce that risk.

Traders have eased off of their bets that the Fed will issue a monster rate hike of 1% at its next policy meeting in two weeks. They now see a 28.5% chance of that happening, according to CME Group. That's down significantly from Thursday. They now see a 71.5% chance of a three-quarters of a percentage point rate hike.

Economic data also shows that retail sales remain strong. A government report showed that retail sales rose 1% in June from May, topping economists’ expectations, while prices for everything from food to clothing rose.

Overseas, stocks in Hong Kong and Shanghai fell following a report that showed the Chinese economy shrank by 2.6% compared with the January-march period’s already weak quarteron-quarter rate of 1.4%. China locked down major cities earlier this year to try and contain COVID-19 cases and more outbreaks this week in China and elsewhere in Asia have raised worries that COVID-19 controls might be restored, on top of existing precautions.

Investors have been reviewing the latest batch of corporate earnings to gain a clearer picture of inflation's impact on businesses. Banks kicked things off with mixed results this week. Several big companies are on deck for next week, including Johnson & Johnson, Netflix, United Airlines and Twitter.