Stocks climbed on Wall Street to their highest level in nearly eight weeks after the Commerce Department reported the U.S. economy expanded at a 2.9% annual pace in the last quarter, ending 2022 with momentum despite higher interest rates and widespread fears of a looming recession. That beat economists' forecasts for a 2.3% expansion.
The S&P 500 climbed 1.1% to clinch its highest finish since Dec. 2, at 4,060.43. The Dow climbed 0.6% to 33,949.41, and the Nasdaq composite gained 1.8% to 11,512.41.
More swings may still be ahead, as Wall Street digests a growing torrent of earnings and economic reports. Markets have veered up and down recently as worries about a severe recession and drop-off in profits battle against hopes the economy can manage a soft landing and the Federal Reserve may ease up on interest rates.
Other reports Thursday showed that orders for long-lasting goods from factories strengthened by more than expected in December and fewer workers applied for jobless claims than expected last week.
Strong data suggest the economy can withstand last year’s blizzard of rate hikes by the Fed, plus at least one more expected next week, without crashing to a deep recession. Higher rates intentionally slow the economy by making it more expensive to borrow to buy a home, a car or anything else on credit. They also drag down prices for stocks and other investments.
But a stronger-than-expected economy, particularly in the job market, could push the Fed to keep rates higher for longer to ensure inflation really is crushed. The Fed has already been saying repeatedly that it plans to do just that, at least through the end of the year, though many investors don't seem to be buying it.
The yield on the 10-year Treasury, which helps set rates for mortgages and other loans crucial for the economy, rose to 3.49% from 3.45% late Wednesday. The two-year yield, which tends to more closely track expectations for Fed actions on interest rates, rose to 4.18% from 4.13%.
While Thursday’s report on the economy may have been encouraging at first blush, it included some concerning signals of slowdown underneath. It’s also backward looking, said Megan Horneman, chief investment officer at Verdence Capital Advisors.
“The first half of this year is going to be tough,” she said, pointing to recent weakness in both the manufacturing and services sectors of the economy.
On the earnings front, reports from some big tech-oriented companies helped build optimism a day after worries flared following forecasts from Microsoft that were widely seen as discouraging.
Tesla jumped 11% after the electric-vehicle maker reported stronger profit for its latest quarter than analysts expected. Seagate Technology rose 10.9% after it reported better revenue and earnings than anticipated.
Steelmaker Nucor was also among the top-performing stocks in the S&P 500, rising 8.4% after beating Wall Street’s profit and revenue forecasts.
Chevron rose 4.9% after it raised its dividend and approved a program to buy back up to $75 billion of its stock. Both moves put cash directly in the pockets of shareholders, which caught criticism from Washington. White House spokesman Abdullah Hasan suggested oil companies instead “use their record profits to increase supply.”
On the losing end of Wall Street was Sherwin Williams. It fell 8.9% after reporting weaker revenue for its latest quarter than expected. It also gave a forecast for profit this upcoming year that fell well short of analysts' expectations, as a weakened housing industry weighs on demand for paint.
IBM dropped 4.5% despite reporting profit and revenue that met Wall Street's expectations. Analysts pointed to some below-forecast numbers related to how much cash it's generating.
Southwest Airlines fell 3.2% after it said it lost more money than expected during its latest quarter, which was marred by more than 16,700 flight cancellations last month. It also said it expects to turn in a loss for the first three months of 2023.
In energy trading, benchmark U.S. crude rose 21 cents to $81.22 a barrel in electronic trading on the New York Mercantile Exchange. It lost 14 cents to $81.01 on Thursday.
Brent crude, the international pricing standard, gained 17 cents to $87.64 a barrel in London.
In currency trading, the U.S. dollar edged down to 129.83 Japanese yen from 130.23 yen. The euro cost $1.0877, down from $1.0890.
AP Business Writer Stan Choe contributed.
Yuri Kageyama is on Twitter https://twitter.com/yurikageyama