Wall Street hits records as a slowing economy boosts hopes for lower rates

NEW YORK (AP) — Wall Street’s record-breaking rally kept going Wednesday after weak reports on the U.S. economy kept the door open for possible cuts to interest rates.

The S&P 500 rose 0.5% to set an all-time high for a second straight day and for the 33rd time this year. The Dow Jones Industrial Average slipped 23 points, or 0.1%, while the Nasdaq composite added 0.9% to its record set the day before. Trading ended early for the day ahead of the Fourth of July holiday.

Tesla again helped boost the market and rose 6.5% a day after reporting a milder drop in sales for the spring than analysts feared. It was one of the strongest forces pushing upward on the S&P 500, along with Nvidia. The darling of Wall Street’s rush into artificial-intelligence technology climbed 4.6% to bring the chip company’s gain for the year so far to 159%.

The action was stronger in the bond market, where Treasury yields slid following a flurry of reports that came in weaker than expected on both the job market and U.S. services companies. The data could keep the Federal Reserve on course to deliver the cuts to interest rates later this year that Wall Street desires.

One report said activity for businesses in the real estate, retail trade and other U.S. services industries contracted in June for just the third time in 49 months. The reading was weaker than economists’ forecasts, which called for just a slowing of growth. Perhaps more importantly for Wall Street, the report from the Institute Supply Management also said prices were increasing at a slower pace.

That followed reports from earlier in the morning showing a slowing job market. One said slightly more U.S. workers applied for unemployment benefits last week than economists expected, though the number remains low compared with history. Another from ADP indicated employers outside the government slowed their hiring last month, when economists were forecasting an acceleration.

The hope on Wall Street is that the economy will soften by just the right amount: enough to keep a lid on upward pressure on inflation, but not so much that it throws workers out of their jobs and triggers a recession. A much more anticipated report will arrive on Friday, when the U.S. government will give its comprehensive update about how many workers employers added to their payrolls during June.

The yield on the 10-year Treasury dropped to 4.35% from 4.44% late Tuesday, a notable move for the bond market, and much of the slide came after the report on U.S. services businesses. It’s been generally sinking since April on hopes that inflation is slowing enough to get the Federal Reserve to lower its main interest rate from the highest level in more than two decades.

Wednesday’s move erased some of a recent recovery for yields. Last week’s debate between President Joe Biden and former President Donald Trump pushed some traders to make moves in anticipation of a Republican sweep in November, which would raise the possibility of tax cuts and other policies that could cause the U.S. government’s debt to swell.

The two-year Treasury yield, which more closely tracks expectations for Fed actions, fell to 4.70% from 4.75% late Tuesday. Traders are now betting on a nearly three-in-four chance that the Federal Reserve will cut its main interest rate as soon as September, according to data from CME Group.

On Wall Street, Constellation Brands sank 3.3% after swinging between gains and losses during the day. The company behind Modelo beer and Robert Mondavi wines reported stronger profit for the latest quarter than expected, but its revenue came up just shy of financial analysts’ forecasts.

All told, the S&P 500 rose 28.01 points to 5,537.02. The Dow dipped 23.85 to 39,308.00, and the Nasdaq composite gained 159.54 to 18,188.30.

This is a traditionally strong time of year for Wall Street, according to Mark Hackett, Nationwide’s chief of investment research. He said the first half of July has been the best two-week stretch for stocks on the calendar since 1928, and the S&P 500 has risen in July for nine straight years.

Even though discouraging reports have shown lower-income U.S. households are struggling to keep up with still-high inflation, “the glass-half-full mindset of investors continues to drive markets higher,” Hackett said.

In stock markets abroad, indexes rose across much of Europe and Asia. France’s CAC 40 climbed 1.2% to recover more of its losses caused by worries that a swing away from centrist government policies could lead to higher debt for the French government.

The FTSE 100 rose 0.6% in London ahead of an upcoming election in the United Kingdom, while Tokyo’s Nikkei 225 jumped 1.3%.

AP Business Writers Yuri Kageyama and Matt Ott contributed.