Those indexes also fell for the week because of worries that a too-warm economy will push the Federal Reserve to keep interest rates high for longer. Traders ratcheted back expectations for cuts to rates next year by the Fed, after reports showed the U.S. economy remains resilient despite much higher rates and struggles for other economies around the world.
Such data have pushed yields higher in the bond market, which hurts stock prices. But yields held relatively steady on Friday, helping to keep Wall Street quiet.
The yield on the 10-year Treasury inched up to 4.26% from 4.25% late Thursday. The two-year Treasury yield, which more closely tracks expectations for the Fed, rose to 4.97% from 4.95%.
Companies are basically done with reporting their earnings results for the spring, but a few on Friday made some of the largest moves.
Smith & Wesson Brands jumped 10.8% after the gun maker reported stronger results for the three months through July than analysts expected. The summer is usually a lean season for the company, but its sales rose 35% from a year earlier.
Kroger climbed 3.1% following its earnings report. The grocer’s results for the latest quarter topped analysts’ expectations, but its revenue fell short of expectations.
The company announced with Albertsons an agreement to sell some stores, private-label brands and other assets as they try to get approval from regulators for their proposed merger. Kroger also announced an agreement where it would pay more than $1.2 billion to settle the majority of claims related to opioids that could be brought against it by states, subdivisions and Native American tribes.
The upcoming week could be a busier one for markets globally. The centerpiece is likely the latest monthly update on inflation in the United States, due on Wednesday. Economists expect it to show prices at the consumer level were 3.6% higher in August than a year earlier.
Inflation has been generally cooling since peaking above 9% last summer, but the worry is the last bit of improvement to get to the Fed’s 2% target may prove the most difficult. That’s why strong economic reports recently have unsettled the market. They could be providing fuel for U.S. households to keep spending, which encourages companies to try to push prices up further.
High rates are supposed to slow the economy and hurt the job market, which should ultimately help undercut inflation. But the highest rates in more than two decades have yet to do that with great effect. The threat is that could push the Fed to raise rates again and at the very least to keep them high for longer than investors expect.
In conversations with clients, strategists at Bank of America say they’re hearing the belief that the Fed is done hiking rates and the acceptance that rates will stay higher for longer. “We disagree on the former and agree on the latter,” the strategists led by Mark Cabana wrote in a BofA Global Research report. “Both imply higher rates.”
Bank of America says the slow moderation of the job market could push the Fed to hike rates again in November. Most of Wall Street expects the Fed to stand pat on rates at its next meeting later this month.
Also coming next week will be a decision on rates by the European Central Bank and more data about China’s economy. China’s recovery since removing anti-COVID restrictions has fallen well short of expectations, which has removed a big driver of growth for the global economy but also helped to remove some upward pressure on inflation.
In stock markets abroad, Japan’s Nikkei 225 dropped 1.2% after a report showed the world’s third-largest economy grew at a 4.8% annual pace in the April-June quarter. That’s weaker than an earlier estimate of 6% growth.
Indexes were modestly lower across much of the rest of Asia, though higher across Europe.