By David French and Johann M Cherian
(Reuters) – U.S. stock indexes were fighting to hold onto gains into the afternoon on a topsy-turvy Friday, following data releases which offered contrasting views on when interest rate cuts may begin.
After a week of negative performance, both the S&P 500 and Nasdaq Composite traded higher in the morning after services sector data pointing to a weaker economy raised bets of faster interest-rate cuts this year.
The data from the Institute for Supply Management (ISM) came hours after robust jobs data doused expectations of rapid easing, which had pushed futures lower prior to the open.
Investors have been cautious in the opening sessions of 2024, as they awaited further clarity on when interest rate cuts will begin, and how quickly they will happen.
Hopes for a swift pace of easing had triggered a blistering rally in the final weeks of 2023, so any undermining of that hypothesis has been a cue for profit-taking.
The ISM survey showed services sector activity, which accounts for more than two-thirds of the economy, fell to 50.6 in December from 52.7 in the previous month. Economists polled by Reuters had forecast 52.6.
Markets had initially scaled back bets for a March rate cut after a Labor Department report showed U.S. employers hired more workers than expected in December, while raising wages at a solid clip.
Traders now see a 71% chance of at least a 25-basis point cut in March, up from nearly 55% earlier in the day, according to the CME Group’s FedWatch tool.
“The name of the game with the numbers today is that employment, it’s weaker than advertised when you take into account the revisions,” said Thomas Hayes, chairman at Great Hill Capital.
“And on ISM non-manufacturing data, it came in lower than estimated as well and that keeps the Fed cuts sooner rather than later on the table and that’s what the market likes.”
The yield on the benchmark U.S. Treasury 10-year note, reflecting interest rate expectations, ticked up into the afternoon and was back above 4%. [US/]
The S&P 500 is on track for its worst weekly performance since late October, while the Nasdaq is on course for its worst week since late September, impacted by rotation out of tech-heavy stocks into defensive sectors like healthcare, financials and utilities.
At 1:47 p.m. ET, the Dow Jones Industrial Average was up 49.56 points, or 0.13%, at 37,489.9, the S&P 500 was up 13.87 points, or 0.3%, at 4,702.55, and the Nasdaq Composite was up 50.79 points, or 0.35%, at 14,561.09.
The financials index was among the S&P 500 sectors in positive territory. It was trading 0.5% higher, having notching an over 1-1/2-year high earlier in the day.
Banks continued to perform well, ahead of the start of earnings season next week, with the S&P Banks index up 1.4% at an 11-month high. Large regional banks were buoyant, with KeyCorp , Citizens Financial Group <CFG.N> and Comerica Inc all rising more than 2.8%.
Applied Therapeutics tumbled 37.6% after the drug developer’s heart disease drug showed disappointing results in a late-stage trial.
Palantir Technologies lost 1.2% after Jefferies downgraded the data analytics firm to “underperform” on high stock valuations.
Peloton jumped 8.4% after the fitness equipment maker said it will bring its workout content to short-form video platform TikTok in an exclusive partnership.
(Reporting by Johann M Cherian and Shristi Achar A in Bengaluru and David French in New York; Editing by Devika Syamnath and Aurora Ellis)
