Stocks rally as Wall Street closes in on rare winning week

A pedestrian walks past the New York Stock Exchange, Monday, Jan. 24, 2022, in New York. Stocks are opening higher again on Wall Street Friday, June 24, keeping the market on track for solid weekly gains after two punishing weeks that brought back-to-back weekly drops of more than 5%. (AP Photo/John Minchillo, File)

NEW YORK (AP) — Stocks are rallying again on Friday, and Wall Street is heading for just its second winning week in the last 12 in a reprieve from its brutal sell-off this year.

The S&P 500 was 2.3% higher in midday trading. It’s on pace for a 5.7% gain for the week, though it’s still close to 20% below its record set early this year and hasn’t recouped its loss from the prior week, which was its worst since the early days of the 2020 coronavirus crash.

The Dow Jones Industrial Average was up 631 points, or 2.1%, at 31,309, as of 11 a.m. Eastern time, and the Nasdaq composite was 2.4% higher.

Stocks have climbed this week as pressure from rising Treasury yields lets up somewhat and investors speculate the Federal Reserve may not have to be as aggressive about raising interest rates as earlier thought.

It’s all offered a bit of relief from Wall Street’s tumble through most of the year, caused by the Fed and other central banks slamming into reverse on the tremendous support fed into markets through the pandemic. In hopes of beating down punishingly high inflation, central banks have raised interest rates and made other moves that hurt prices for investments and threaten to slow the economy enough to cause a recession. More such moves are sure to come.

Parts of the U.S. economy are still red-hot, particularly the jobs market, but some discouraging signals have emerged recently. A report on Friday confirmed sentiment among consumers sank to its lowest point since the University of Michigan began keeping records, hurt in particular by high inflation. Another lowlight this week suggested U.S. manufacturing and services sectors aren’t as strong as economists thought.

Such weakening data raise worries about the strength of the economy. But they also can be good for financial markets, as paradoxical as that may seem.

The weakness could mean less upward pressure on inflation, which would ultimately mean the Federal Reserve doesn’t have to raise rates so aggressively. And interest rates drive trading for everything from stocks to cryptocurrencies.

One nugget in the consumer sentiment report could carry particular weight for markets. It showed consumers’ expectations for inflation over the long run moderated a bit to 3.1% from a mid-month reading of 3.3%. That’s crucial for the Fed because expectations for higher inflation in the future can trigger a vicious cycle causing a self-fulfilling prophecy.

Last week, the Fed hiked its key short-term rate by the biggest margin since 1994 and said another such increases could be coming, though they wouldn’t be common.

Since the Fed’s meeting last week, investors have been modestly ratcheting back their expectations for how high the Fed will hike interest rates into early next year.

That's helped yields in the Treasury market recede. The yield on the two-year Treasury, which tends to move with expectations for the Fed’s actions, has dropped back to 3.05% from more than 3.40% in the middle of last week, though it rose Friday.

The yield on the 10-year Treasury, which sets the bedrock of the world’s financial system, rose to 3.12% on Friday from 3.07% late Thursday. But it also has moderated after coming close to 3.50% last week.

Earlier this year, it more than doubled after starting 2022 a little above 1.50%.

A separate economic report on Friday showed sales of new homes unexpectedly accelerated last month. But the trend for housing has largely been lower because it's at the leading edge of the Fed's hikes, with more expensive mortgage rates hurting the industry. Another report earlier this week showed sales of previously occupied homes slowed last month.

Wall Street’s gains on Friday were part of a global rally.

London's FTSE 100 added 2.5%, Germany's DAX returned 1.7% and France's CAC 40 jumped 3.2%.

Tokyo's Nikkei 225 added 1.2% as a report showed inflation in Japan remained at 2.1% in May. After stripping out costs for energy and fresh food, though, underlying inflation remained at 0.8%. And Japan's central bank is unlikely to follow the example of the Fed and other central banks in raising interest rates, analysts said.

___

AP Business Writer Elaine Kurtenbach contributed.