Traders work on the floor of the New York Stock Exchange (NYSE) February 26, 2016. REUTERS/Brendan McDermid
NEW YORK: Wall Street pared early gains on Friday after stronger-than-expected US GDP and consumer spending data raised the likelihood of the Federal Reserve hiking interest rates sooner than expected.
Fourth-quarter gross domestic product increased at a 1% annual rate instead of the previously reported 0.7% pace. The economy grew at a rate of 2.0% in the third quarter.
US crude prices, a major stock market driver this year, also gave up most of their early gains and were up less than 1%.
The US Federal Reserve raised rates in December and chair Janet Yellen has hinted at a gradual increase through 2016 if data shows the economy is strong enough to withstand a move away from near-zero rates.
Federal funds futures implied traders see a 25% chance of the Fed raising rates in June and a 44% chance in December, both slightly higher than Thursday’s levels, according to CME Group’s FedWatch programme.
A rate hike increases borrowing costs, but banks benefit from higher interest income.
The S&P financial sector provided the biggest boost to the S&P 500. Goldman Sachs was the biggest influence to the Dow with a 1.4% rise, while Bank of America’s 4.5% increase helped lift the S&P 500.
The sector has been the worst performer among the 10 major S&P sectors this year on worries about banks facing defaults from oil and gas companies.
“We’ve been low on oil for so long that stable or slightly higher oil price is viewed positively as a stabilizing effect on the economy and stock market,” said Mark Spellman, portfolio manager at Alpine Funds in New York.
At 12:38pm ET (1738 GMT), the Dow Jones industrial average was up 12.57 points, or 0.08%, at 16,709.86, the S&P 500 was up 3.23 points, or 0.17%, at 1,954.93 and the Nasdaq Composite index was up 7.52 points, or 0.16%, at 4,589.73.
Five of the 10 major S&P sectors were higher. The materials sector rose 1.54%, while utilities fell the most, declining 2.32%.
In other US data, consumer spending rose strongly in January, while underlying inflation picked up by the most in four years.
Shares of J.C. Penney were up 12.1% at US$9.38 after the department store operator reported better-than-expected revenue.
Baidu was up 9.4% at US$173.15 after the Chinese Interest search firm posted better-than-expected quarterly results. The stock gave the biggest boost to the Nasdaq.
Advancing issues outnumbered decliners on the NYSE by 2,011 to 977. On the Nasdaq, 1,751 issues rose and 903 fell.
The S&P 500 index showed 21 new 52-week highs and no new lows, while the Nasdaq recorded 37 new highs and 37 new lows. - Reuters
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