US stocks open higher as rate hike worries ebb

US stock indexes were subdued on Friday, but on course for weekly gains as signs of easing price pressures and slowing economic growth fueled hopes the Federal Reserve was nearing the end of its monetary tightening campaign.

The S&P 500 and Nasdaq hovered near 14-month highs as a slew of economic data this week pointed to cooling inflation, eclipsing concerns about further interest rate hikes that the Fed forecast on Wednesday.

The U.S. central bank signaled borrowing costs could rise by as much as half a percentage point by the end of this year but traders see the Fed pausing after a 25-basis-point rate hike in July, as per CMEGroup’s Fedwatch tool.

After a strong run in the markets recently, investors switched to defensive parts of the market on Friday.

The S&P 500 utilities and consumer staples stocks rose 1.1% and 0.5%, respectively, while the material sector led declines.

“There are people who are going to fade the rally because the market has been insanely strong this year. So you’re getting a little bit of rotation into some defensive sectors,” said Jay Hatfield, chief executive officer at Infrastructure Capital Management.
U.S. consumers’ near-term inflation expectations dropped to more than a two-year low in June and the outlook over the next five years improved slightly, according to the University of Michigan’s survey that also showed sentiment perking up.”Investor optimism is around rapidly declining inflation. Markets are catching up to the bullish outlook and increasingly believing that the Fed has zero credibility,” Hatfield said.

However, hawkish remarks from Fed policymakers tempered investor optimism.

Fed Governor Christopher Waller said “core inflation is not coming down like I thought it would,” and Richmond Fed President Thomas Barkin said he was “comfortable” with further rate increases given that inflation was not yet on the path back to 2%.

At 11:57 a.m. ET, the Dow Jones Industrial Average was down 6.16 points, or 0.02%, at 34,401.90, the S&P 500 was up 2.21 points, or 0.05%, at 4,428.05, and the Nasdaq Composite was down 26.51 points, or 0.19%, at 13,756.31.

Still, a blistering rally in megacap stocks has set the Nasdaq up for its eighth consecutive week of gains, its longest streak of weekly advance since March 2019, while the benchmark S&P 500 is on track to climb for a fifth straight week.

Nvidia rose 1.8% to fresh record highs after Morgan Stanley hiked its price target to $500 and named the chipmaker as its top pick among U.S. semiconductor firms.

Adobe Inc gained 3% after the Photoshop maker’s earnings forecast surpassed analyst estimates.

Trading is expected to be volatile on Friday due to the simultaneous expiration of stock options, stock index futures and index options contracts.

Vacuum cleaner maker iRobot Corp jumped 20.4% after Britain’s competition regulator cleared’s planned $1.7 billion acquisition of the company.

Micron Technology slipped 1.7% after the memory chipmaker warned of a bigger hit to global revenue from a Chinese ban on sale of its chips to key domestic industries.

United Parcel Service slid 0.9% after its union employees voted to authorize a strike should contract talks break down.

Declining issues outnumbered advancers by a 1.51-to-1 ratio on the NYSE and a 1.78-to-1 ratio on the Nasdaq.

The S&P index recorded 24 new 52-week highs and no new lows, while the Nasdaq recorded 90 new highs and 36 new lows.