By Stephen Culp
NEW YORK (Reuters) -U.S. stocks were lifted by semiconductor shares on Wednesday, and the benchmark Treasury yield continued to climb to a more than one-month high amid cooling optimism over imminent interest rate cuts from the Federal Reserve.
Supply concerns arising from simmering geopolitical tensions helped boost oil prices.
All three major U.S. stock indexes were higher, and were on track for weekly gains.
The benchmark S&P 500 continued to hover within 1% of its all-time closing high.
A sunnier-than-expected consumer sentiment reading added to the list of solid economic data released this week, notably retail sales and jobless claims.
These robust indicators dampened expectations that the Fed would start cutting its key policy rate as soon as March, while also providing assurance that the U.S. economy was under no immediate threat of recession.
“(The Fed) has been pushing back against the market-embedded rate cut expectations, partly due to better economic data,” said Thomas Martin, Senior Portfolio Manager at GLOBALT in Atlanta.
“The assumption about the better economy is that all other things being equal puts upward pressure on inflation, then you have more work to do to make sure inflation comes down further and stays down,” Martin added. “It gives them room to keep rates higher for longer without sending the economy into a recession.”
At last glance, financial markets have priced in a 51.9% probability that the central bank will cut the fed funds target rate by 25 basis points in March, down from 76.9% a week ago, according to CME’s FedWatch tool.
Market participants will be increasingly focused on fourth quarter earnings next week as the reporting season shifts into high gear.
To date, just over 10% of the companies in the S&P 500 have reported results for the Oct-Dec period, 85% of which have beaten analyst expectations, according to LSEG I/B/E/S.
The Dow Jones Industrial Average rose 116.06 points, or 0.31%, to 37,584.67, the S&P 500 gained 16.72 points, or 0.35%, to 4,797.66 and the Nasdaq Composite added 76.09 points, or 0.51%, to 15,131.73.
European shares reversed earlier gains as dimming rate cut expectations put the benchmark STOXX 600 index on track for a weekly decline.
The pan-European STOXX 600 index lost 0.27% and MSCI’s gauge of stocks across the globe gained 0.42%.
Emerging market stocks rose 0.89%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 1.1% higher, while Japan’s Nikkei rose 1.40%.
U.S. 10-year Treasury yields continued to climb on the growing likelihood that the Fed will keep policy rates in restrictive territory for longer than many had anticipated.
Benchmark 10-year notes last fell 6/32 in price to yield 4.1668%, from 4.144% late on Thursday.
The 30-year bond last fell 2/32 in price to yield 4.3743%, from 4.372% late on Thursday.
The dollar was lower against a basket of world currencies, but remained on course for a weekly advance amid cooling rate cut optimism.
The dollar index fell 0.14%, with the euro up 0.06% to $1.0881.
The Japanese yen strengthened 0.03% versus the greenback at 148.13 per dollar, while sterling was last trading at $1.2677, down 0.22% on the day.
Crude prices rose and were headed for a weekly increase as supply concerns from mounting tensions in the middle east outbalanced worries over softening demand.
U.S. crude rose 0.34% to $74.33 per barrel and Brent was last at $79.44, up 0.43% on the day.
Gold prices inched higher but appeared set for its biggest weekly decline in six, as policy makers tempered early rate cut expectations.
Spot gold added 0.2% to $2,026.99 an ounce.
(Reporting by Huw Jones, additional reporting by Stella Qiu; Editing by Susan Fenton, Mark Potter and Chizu Nomiyama)
