Markets pare losses for week in mixed trading day

The toughest week for Wall Street in nearly two months came to a quiet end Friday as stock indexes drifted to a mixed finish.

The S&P 500 rose 0.2%, but still ended the week with a 1.1% drop, its worst week since December. The Dow Jones Industrial Average gained 0.5%, while the Nasdaq composite fell 0.6%.

Stocks have been struggling after a January rally on hopes the economy will avoid a severe recession and that cooling inflation will get the Federal Reserve to take it easier on interest rate increases. Worries worsened recently that a still- strong U.S. jobs market will push up inflation and keep rates at a higher-for-longer level, as the Fed has been warning.

Higher rates can drive down inflation, but also raise the risk of a recession and drag down investment prices. And central banks around the world are intent on tightening the screws by raising rates further, even if at a slower pace than before.

“For most central banks the risk is that they have tightened too little, not too much,” economists led by Ethan Harris wrote in a Bank of America Global Research report.

“The ultimate gauge of success here is not avoiding a recession, but getting inflation on a path back to target,” Harris wrote.

Investors will get more updates on inflation next week when the federal government releases its latest monthly updates on prices at the wholesale and consumer levels.

The worries about rates mean much of Wall Street’s action of late has been in the bond market, where yields have climbed on expectations for a firmer Fed. The yield on the 10-year Treasury, which helps set rates for mortgages and other important loans, rose to 3.73% from 3.66% late Thursday.

The two-year yield, which moves more on expectations for the Fed, ticked up to 4.50% from 4.48%. It was at 4.08% about a week ago and is near its highest level since November.

Companies in recent weeks have also been delivering a mixed set of earnings reports for the end of 2022.

Lyft Inc. tumbled 36.4% after its latest report. The ride-hailing company gave a forecast for revenue in the first three months of 2023 that fell short of analysts’ expectations.

News Corp. fell 9.4% after the owner of The Wall Street Journal and other media outlets reported weaker quarterly results than expected. The company also said it will cut 5% of its workforce in 2023 as it contends with higher interest rates and inflation.

Expedia Group Inc. lost 8.6% after reporting weaker profit and revenue for the latest quarter than expected.

On the winning side of Wall Street were energy stocks, which rose with the price of crude oil. Valero Energy Corp. gained 6.1%, and Marathon Oil Corp. climbed 6.2%.

Oil ticked up after Russia said it will cut oil production by 500,000 barrels per day during March. Among other sanctions, Western countries capped the price of Russia’s crude over its invasion of Ukraine. Brent crude, the international standard, rose $1.89 to $86.39 per barrel. Benchmark U.S. crude added $1.66 to $79.72 per barrel.

Sharp rises in energy prices are one of the two big risks that Yung-Yu Ma, chief investment strategist at BMO Wealth Management, said he sees ahead for the market. That would send inflation higher and push the Fed to raise rates even higher than the forecasts Wall Street has just recalibrated to this past week.

The other big risk, he said, is if growth in workers’ wages stays too high, which the Fed could also see as pushing upward on inflation and potentially causing a reacceleration.

“The Fed is more concerned with inflation staying down,” Ma said. “The market just wants it to come down. Once it comes down, the narrative is going to change: Will it stay down and allow the Fed to make a ‘dovish pivot’” by talking about rate cuts “or will it reaccelerate and cause the Fed to be on a longer-term inflation fighting mission?”

Meantime, he said: “The best we can hope for is the Fed not raising rates too high and just being patient, letting them remain at that level for a while to see how things play out.”

All told, the S&P 500 rose 8.96 points to 4,090.46 Friday. The Dow gained 169.39 points to 33,869.27, while the Nasdaq fell 71.46 points to 11,718.12.