Wall Street stalls as interest rate deferral hopes plummet

NEW YORK (AP) Stocks rose on Wall Street, pushing the S&P 500 up 0.9% as several companies reported better-than-expected results. The Nasdaq composite led the market with a 1.5% gain Thursday, while the Dow Jones Industrial Average trailed with a 0.3% gain. Bond yields rose after a Federal Reserve official warned that the end of rate hikes may not come as quickly as markets had hoped. That cooled hopes that June could mark the first time in more than a year that the Fed does not raise rates. Walmart rose after results beat expectations.

THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.

Shares in NEW YORK (AP) floated higher especially on Thursday as interest rates rose after a Federal Reserve official warned that the end of rate hikes may not come as soon as Wall Street had hoped.

The S&P 500 was up 0.5% in late trading, adding to the rally from a day earlier as momentum appears to be building for the US government to stave off a disastrous default on its debt. The Dow Jones Industrial Average fell 32 points, or 0.1%, to 33,388 with less than an hour left in trading, while the Nasdaq composite was up 1%.

Helping to support Wall Street was walmart, which rose 1.1% after reporting stronger-than-expected results for the final quarter. It also raised its full-year financial forecast, though it said shoppers remain cautious about spending.

Bath & Body Works, another retailer, rose 9.4% after reporting stronger sales and profits for the last quarter.

There has been a lot of focus on the retail sector, as strong US household spending has been one of the main pillars in keeping the slowing economy out of recession.

Video game maker Take-Two Interactive rose 12.7% after it predicted a massive revenue increase for fiscal 2025, sparking speculation that Grand Theft Auto VI is coming.

Equities have remained remarkably resilient since early April, despite a long list of concerns. A major reason for this is the hope that the Fed will ease up on its rate hikes, which have slowed inflation at the cost of risking a recession and driving prices down in the financial markets.

The widespread guess was that the Fed would take a break at its next meeting in June. But Dallas Fed President Lorie Logan tempered some of those hopes in a prepared speech to the Texas Bankers Association.

Data in the coming weeks could still show that it is appropriate to skip a meeting, said Logan. But as of today we are not there yet.

Treasury yields rose as traders increased their bets that the Fed would hike rates again at its June meeting, although the majority still predicts a pause.

The yield on the 10-year Treasury rose from 3.57% at the end of Wednesday to 3.65%. The two-year interest rate, which moves more in line with the Fed’s expectations, rose from 4.16% to 4.27%.

Higher rates have already slowed the economy and led to three of the largest US bank failures in history since March. The news about the economy came in mixed on Thursday.

One showed that fewer workers applied unemployment benefits last week than expected. While this is good news for workers and for a so far solid labor market, it could also put upward pressure on inflation. That’s what the Fed is desperately trying to cut by raising benchmark rates to the highest level since 2007.

A separate report said mid-Atlantic manufacturing continues to weaken, though not as much as economists had expected.

Cisco Systems’ stock fluctuated between small gains and losses after reporting stronger-than-expected final quarter results and raising its current quarter forecast. Analysts said some investors may be disappointed due to concerns about lower-than-expected growth in the next fiscal year. The stock was recently up 0.3%.

Most companies in the S&P 500 reported higher earnings for the first three months of the year than analysts had expected. But according to FactSet, they are still on track to report weaker earnings for the second quarter in a row than a year earlier.

On foreign exchanges, indices rose across much of Europe and Asia after a major Wall Street rally spread west from Wednesday. That lift came after President Joe Biden said he is confident in striking a deal with the Republicans to allow the US government to increase its credit limit and borrow more.

That could prevent a possible first-ever default on Washington’s debt. The government is slated to run out of money to pay its bills from June 1 unless a deal is struck, and economists say bankruptcy could have catastrophic consequences for financial markets and the economy.

In Asia, Japan’s Nikkei 225 rose 1.6% to continue a strong recent run, while Europe’s German DAX was up 1.3%.

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AP Business Writers Matt Ott and Joe McDonald contributed