NEW YORK (AP) 鈥� Wall Street closed out a strong January with more gains. The S&P 500 rose 1.5% Tuesday, marking its third winning month in the last four. The Dow rose 1.1% and the Nasdaq rose 1.7%. The gains came ahead of what many investors hope will be one of the Federal Reserve鈥檚 last hikes to interest rates for a while. Markets got a boost after a report showed that growth for workers鈥� pay and benefits slowed during the end of 2022. While that鈥檚 frustrating for people trying to keep up with soaring prices, markets see it as an encouraging sign of easing pressure on inflation.
THIS IS A BREAKING NEWS UPDATE. AP鈥檚 earlier story follows below.
NEW YORK (AP) 鈥� Wall Street is closing a strong January with more gains on Tuesday, ahead of what many investors hope will be one of the Federal Reserve鈥檚 last hikes to interest rates for a while.
The S&P 500 was 1% higher and on pace to close out its third winning month in the last four. The Dow Jones Industrial Average was up 209 points, or 0.6%, at 33,926, as of 2:59 p.m. Eastern time, and the Nasdaq composite was 1.3% higher.
Markets got a boost after a report showed that for U.S. workers鈥� pay and benefits slowed during the end of 2022. While that鈥檚 frustrating for people trying to keep up with higher prices for eggs and other groceries, markets see it as an encouraging sign of easing pressure on inflation.
With the pace of inflation cooling since the summer, virtually all of Wall Street expects the Federal Reserve on Wednesday to its smallest increase to interest rates since March, at 0.25 percentage points. That would be the latest stepdown after it pushed through four straight increases of 0.75 points and then a hike of 0.50 points.
Such moves try to stamp out inflation by intentionally slowing the economy and dragging down on prices for stocks and other investments. The worry is that too-high rates would cause a severe recession and drop-off in corporate profits.
Such worries, combined with hopes for an easier Fed, have led to sharp swings in markets recently. They鈥檝e hit not only day-to-day but also hour-to-hour. Analysts say much of this past month鈥檚 gains has been more about improving sentiment among investors than any big improvement in the economy or profits.
鈥淎s long as the Fed is raising interest rates, you will have market volatility,鈥� said Mary Ann Bartels, chief investment strategist at Sanctuary Wealth.
鈥淭his is a market that is very bipolar,鈥� she said. 鈥淎nd that鈥檚 actually healthy for a market. You don鈥檛 want one skewed too bullish,鈥� or optimistic, and 鈥測ou don鈥檛 want one skewed too bearish," or pessimistic. 鈥淚 think we鈥檙e balancing out that extreme bearishness in the market.鈥�
She sees stocks continuing to grind higher through the year, led in particular by energy and industrial companies, though that may get hidden when simply looking at market indexes like the S&P 500 because those stocks are relatively small pieces of the market.
With seemingly everyone on the same page about what the Fed will do on Wednesday, the big question is what comes afterwards. The Fed has so far pledged to keep rates higher for longer to ensure inflation is truly defeated. Markets, meanwhile, are holding out hope that just one more small increase may be on the way in March and that cuts to rates could follow late in the year.
Other reports on the economy Tuesday came in lower than expected, which could give the Federal Reserve leeway to be less harsh on rates. A measure of confidence among consumers weakened in January, when economists were expecting it to stay flat. And a measure of business activity in the Midwest showed more weakness than expected for January.
Treasury yields fell immediately after the release of the report on employment costs, before paring their drops. The yield on the 10-year Treasury, which helps set rates for mortgages and other loans, slipped to 3.53% from 3.54% late Monday. The two-year yield, which moves more on expectations for the Fed, dipped to 4.21% from 4.24%.
Earnings reporting season is also in top gear, with McDonald鈥檚 and other big companies headlining the day. They offered a mixed picture, much as reports have so far this reporting season.
McDonald鈥檚 fell 1.6% despite reporting stronger profit and revenue than analysts expected. What may have disappointed Wall Street was McDonald鈥檚 forecast for upcoming profit margins. They could imply inflation and cost pressures may be continuing to squeeze the company.
Caterpillar dropped 3.9% after it reported weaker profit than expected but stronger revenue.
On the winning side was General Motors, which revved up by 7.7% after reporting stronger profit and revenue than expected.
Stock markets in Asia closed mostly lower and European markets ended mixed.
In a positive sign, the has grown slightly brighter as China eases its zero-COVID policies and economies show surprising resilience in the face of high inflation, elevated interest rates and Russia鈥檚 ongoing war against Ukraine.
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AP Business Writers Yuri Kageyama and Matt Ott contributed.
Stan Choe, The Associated Press
