NEW YORK (AP) — More signals of a slowing economy are raising Wall Street’s hopes for a “Goldilocks” outcome that’s just right for markets. That has stocks holding onto most of their strong gains for November so far, despite some unnerving profit forecasts from Walmart and Cisco Systems.
The S&P 500 was edging up by 0.1% in morning trading and remains comfortably on its way to a third straight winning week. The Dow Jones Industrial Average was down 50 points, or 0.1%, as of 10:30 a.m. Eastern time, and the Nasdaq composite was virtually unchanged.
Stocks have leaped this week, putting November on track to be their best in a year, on hopes that inflation is cooling enough to convince the Federal Reserve to halt its hikes to interest rates following its fusillade since last year. That’s in turn pushed expectations up for when the Fed could begin cutting rates, which can act like steroids for financial markets, in the summer.
Several more reports on Thursday indicated the economy is slowing. While the weaker-than-expected data are of course a signal the economy may be losing some of its strong momentum, for investors, they more importantly show that upward pressures on inflation may be easing.
The Fed has been trying to shepherd the economy along a tightrope, to slow enough to stamp out high inflation without falling into a recession. Thursday’s weaker-than-expected reports strengthened investors’ hopes that the Fed can go easier on interest rates, which triggered an immediate drop in Treasury yields.
The yield on the 10-year Treasury fell to 4.43% from 4.54% late Wednesday. Just last month, it was above 5% at its highest level since 2007 and raising worries on Wall Street as it undercut prices for stocks and other investments.
The drop in yields and signs of a slowing economy helped to release some of the pressure on financial markets, but they also keep fears bubbling about a possible recession down the line.
Walmart dropped 7.5% after it warned that shoppers began pulling back on spending late last month and gave a forecast for upcoming holiday profit that was weaker than analysts expected. The nation’s largest retailer’s stock fell even though it reported results for the latest quarter that edged past Wall Street’s expectations.
Strong spending by U.S. households amid a solid job market has been one of the most important reasons for the economy’s strength.
Cisco Systems tumbled 11.9% even though it also reported stronger results for the latest quarter than analysts estimated. The company saw a slowdown of new product orders last quarter, and gave forecasts for earnings this upcoming quarter and fiscal year that were weaker than analysts expected.
On the winning side of Wall Street was Macy’s, which jumped 7.7% after delivering a surprising profit for the latest quarter.
Some economists and analysts are warning investors that they’ve become overzealous in predicting when the Fed could begin cutting rates. Even if the Fed is done hiking its main interest rate, officials at the central bank have said they’ll likely keep it high for a while to ensure inflation is truly stamped out. The federal funds rate is above 5.25% and at its highest level since 2001.
But investors have been paying more attention to recent data reports showing a slowdown in the economy. On Thursday, one said that slightly more workers applied for unemployment benefits last week. The number is still low relative to history, but a softening in the job market could prevent the too-strong raises in workers’ pay that the Fed fears could trigger a vicious cycle that keeps inflation high.
Separate reports said that manufacturing in the mid-Atlantic region is unexpectedly weakening, while U.S. industrial production weakened more than expected in October.
A slowing economy would also mean softer growth in demand for fuel, and worries are already high about swelling inventories for crude oil. A barrel of benchmark U.S. crude tumbled 3.6% to $73.85 and touched its lowest price since July.
Brent crude, the international standard, dropped 3.7% to $78.16 per barrel.
Strategists at Barclays expect global economic growth to slow in 2024 before recovering in 2025, as inflation falls further.
That’s still a “benign bottom for a business cycle,” Ajay Rajadhyaksha and other analysts wrote in a report, and they expect the U.S. unemployment rate to top out at 4.3%, well below where it has in past recessions.
In stock markets abroad, Tokyo’s Nikkei 225 slipped 0.3% after Japan reported that its exports rose a meager 1.6% in October, down from September’s growth.
Indexes were mixed across the rest of Asia and Europe.
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AP Business Writers Matt Ott and Elaine Kurtenbach contributed.