Higher interest rates can make pricey growth stocks, like those of Big Tech companies, look less attractive relative to their earnings. Tech stocks have been among the biggest drags on the market the past couple of days and were weighing down the indexes Thursday morning. But the sector began to recover by midafternoon, helping lift the broader market. Microsoft rose 0.6 per cent and Adobe rose 1.9 per cent.

Health care stocks, retailers and other companies that rely on direct consumer spending also rose after having been down earlier in the day. Pfizer rose 4.3 per cent, Target gained 5.7 per cent and McDonald’s rose 1.2 per cent.

Communication services stocks were among the biggest weights on the market. Twitter fell 5.4 per cent.

Computer and printer maker HP surged 14.8 per cent for the biggest gain in the S&P 500 after Warren Buffett’s Berkshire Hathaway disclosed an 11 per cent stake in the company.

Bond yields rose. The yield on the 10-year Treasury rose to 2.65 per cent from 2.61 per cent late Wednesday.

Every major index is in the red for the week following two big losses that were partly prompted by concerns over the Fed’s shifting policy as it tries to combat inflation.

Minutes from the Fed’s meeting last month showed policymakers agreed to begin cutting the central bank’s stockpile of Treasurys and mortgage-backed securities by about $US95 billion a month, starting in May. That’s more than some investors expected and nearly double the pace the last time the Fed shrank its balance sheet.

The central bank is reversing course from low interest rates and the extraordinary support it began providing for the economy two years ago when the pandemic knocked the economy into a recession. It already announced a quarter-percentage point increase and is expected to keep raising rates throughout the year.

Traders are now pricing in a nearly 80 per cent probability the Fed will raise its key overnight rate by half a percentage point at its next meeting in May. That’s double the usual amount and something the Fed hasn’t done since 2000.

Persistently rising inflation has been threatening economic growth. Business have been raising prices on everything from food to clothing and that has put more pressure on consumers. Some companies have been unable to offset the impact from inflation, even with price hikes.

Duncan Hines and Birds Eye brands maker ConAgra cut its financial forecast for the year and said another round of price increases will be needed.

Wall Street is concerned about consumers eventually pulling back on spending as higher prices become too difficult to digest. Price increases were responsible for a rise in consumer spending in March, otherwise, the results revealed a pullback.

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A rapid increase in interest rates could also affect corporate earnings growth, though gauging that depends on how aggressive the Fed will be.

“Do we have to take earnings expectations down?” Haworth said. “That’s what the market’s really (been) trying to decide over the last couple of days. Is the aggressiveness of the Fed going to change that equation?”

Russia’s invasion of Ukraine has also added to concerns about inflation. Energy prices have been particularly volatile and pushed petrol prices higher. US benchmark crude oil prices fell 0.2 per cent, but are still up roughly 31 per cent for the year.

Investors received an encouraging update on the job market on Thursday. The Labor Department reported that fewer Americans applied for unemployment benefits last week as layoffs remain at historically low levels.

AP

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