Stock market today: Wall Street holds steadier after last week’s bumpy ride

NEW YORK (AP) — U.S. stocks are holding steadier Monday after a roller-coaster end to last week left them a bit shy of their records.

The S&P 500 was virtually unchanged in early trading, coming off a stretch where a 1.2% drop immediately flipped to a 1.1% gain. The Dow Jones Industrial Average was up 51 points, or 0.1%, as of 9:35 a.m. Eastern time, and the Nasdaq composite was basically flat.

Much of the focus has been on interest rates and when the Federal Reserve will lower them to ease pressure on the economy and financial system. A string of reports showing both inflation and the economy have remained hotter than expected has forced Wall Street to delay forecasts for when relief on rates could arrive.

This upcoming week has several flashpoints that could further swing expectations. On Wednesday will come the latest monthly update on the inflation that U.S. consumers are feeling. Later in the week will be reports on inflation at the wholesale level and expectations for upcoming inflation among U.S. households.

Fed Chair Jerome Powell has said recently he still expects cuts to interest rates this year, but the central bank first needs additional confirmation inflation is heading toward its target of 2%. The Fed has been holding its main interest rate at the highest level in more than two decades, hoping to grind down enough on the economy and prices for investments to get inflation under control. The risk of holding rates too high for too long is it could cause a recession.

But some Fed officials have also raised the possibility of rates staying high for longer if inflation remains stubbornly high. That has pushed some traders on Wall Street to cut back expectations for how many cuts to rates may arrive this year to two from three. They had already drastically pulled back their forecasts from the start of this year, when many were expecting six cuts or more.

Traders now see roughly a coin flip’s chance of the Fed cutting interest rates at its meeting in June, down from a better than 70% probability a month ago, according to data from CME Group. The fear is that if the Fed waits too long before cutting rates, it will have to wait until after November’s presidential election out of fear of appearing political, even if the Fed’s Powell said last week that it has the independence to make decisions “without consideration of short-term political matters.”

Cuts to interest rates not only make borrowing easier for U.S. households and companies, they also encourage investors to pay higher prices for stocks and other investments. Stock prices have already leaped in part on such expectations.

At the moment, the resilient U.S. economy is raising hopes that profits for companies can continue to grow. That aids one of the two main levers that set stock prices. But if that same resilient economy also ultimately means no rate cuts in the future, it would pressure interest rates, which is the other lever that sets stock prices.

Critics say stock prices already look expensive given their huge run of more than 20% from November into March. That means “achieving ambitious earnings forecasts has become paramount,” according to Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management.

“Economic growth is good, but complacency around its implications is not,” she said.

To that end, this week will bring the start of the latest earnings reporting season. Delta Air Lines, JPMorgan Chase and other banks will headline the earliest days of the reporting period, and analysts are expecting companies across the S&P 500 to deliver a third straight quarter of growth from the prior year.

JPMorgan Chase added 0.7% after CEO Jamie Dimon, the nation’s most influential banker, told investors he continues to expect the U.S. economy to grow this year. But he worries the war in Ukraine, the Israel-Hamas war and U.S. political polarization might be creating an environment that “may very well be creating risks that could eclipse anything since World War II.”

U.S.-traded shares of Taiwan Semiconductor Manufacturing Co. rose 1.8% after the Biden administration pledged to provide up to $6.6 billion so that it can expand the facilities it is already building in Arizona and better ensure that the most advanced microchips are produced domestically for the first time.

In the bond market, Treasury yields were rising to add to their gains for the year so far on diminished expectations for cuts to rates. The yield on the 10-year Treasury ticked up to 4.42% from 4.40% late Friday and less than 3.90% at the start of the year.

In stock markets abroad, indexes mostly rose across Europe and Asia, though stocks fell 0.7% in Shanghai.

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AP Business Writers Matt Ott and Yuri Kageyama contributed.