Wall Street rally continues as crypto suffers

NEW YORK (AP) — Wall Street is betting a little more on its astonishing gain from the day before in Friday morning trading, keeping it on track for a strong gain for the week.

SEE: How interest rate increases affect bonds and share prices

The S&P 500 was 0.6 percent higher on the day after rising 5.5 percent in what was its best day since spring 2020. The Dow Jones Industrial Average was down 41 points, or 0.1 percent, at 33,674, after had risen more than 1,200 points per day earlier, while the Nasdaq composite was 1.2% higher, as of 10:21 a.m. ET.

Markets got a boost after China eased some of its strict anti-COVID measures, which have hurt the world’s second-largest economy. Hopes of more economic growth from China helped not only stocks but also oil prices to rise, with US crude rising more than 4 percent to top $90 a barrel.

Thursday’s huge rally for Wall Street came after a report showed U.S. inflation eased more than expected last month. That raised hopes that the worst of inflation may finally have passed and that the Federal Reserve may take a less aggressive path to raising interest rates, although analysts and economists warned that high inflation may remain firmer than expected on the way down. Increases in such rates can lead to a recession and drag share prices down.

Just as important as how bad inflation is at the moment is how high US households see it being in the years ahead. That’s because too high expectations can trigger a vicious cycle where people speed up purchases and make other moves that only add to inflation.

The Fed has said it monitors such expectations closely, and that preventing such a doom loop is one of the reasons it has been so aggressive in raising interest rates. Inflation expectations have been relatively high recently, but not so much that they have triggered panic in the Federal Reserve. A preliminary report on Friday suggested that US households are not moving those expectations very much.

The median expectation for inflation in the coming year among households ticked up to 5.1 percent from 5 percent a month earlier, according to a University of Michigan survey. Expectations for long-term inflation, meanwhile, ticked up to 3 percent. But it remains within the same range of 2.9 percent to 3.1 percent that it has been in for 15 of the past 16 months.

READ MORE: Analysis: Why a party in power can’t do much about inflation

The Fed has already raised the key overnight rate to a range of 3.75 percent to 4 percent, up from zero initially in March. The likely scenario remains that it increases further into next year, and then rates stay at the high level for a while.

The hope for the markets is that a softening of inflation may mean the Fed will hold the line at a lower, less painful level for the markets than it otherwise would have done.

Traders are now increasingly betting that the rate could peak around a range of 4.75 percent to 5 percent early next year, according to CME Group. A week ago, they saw a higher final rate as much more likely, with a significant portion expecting something like 5.25 percent to 5.50 percent.

The bond markets are closed for trading in connection with Veterans Day. On Thursday, interest rates fell as investors reduced expectations of how aggressively the Fed will raise interest rates.

The S&P 500 is on track for its third weekly gain in the last four, and the 5.5 percent gain is on track to be the biggest since June.

In the crypto market, prices are falling again amid the industry’s latest crisis of confidence. One of the major crypto trading platforms, FTX, filed for bankruptcy protection after users began trying to withdraw their funds due to fears about its financial strength.

The exchange and its founder are under investigation by the Department of Justice and the Securities and Exchange Commission, and rivals have said FTX’s failure could undermine confidence in the entire system.

Bitcoin fell below $16,900, down 4.6 percent from a day earlier, according to CoinDesk. It set the record at almost $69,000 almost exactly a year ago, and it was over $21,000 a week ago.

AP Business Writers Joe McDonald and Matt Ott contributed.