U.S. stocks rise, Dow heads for third straight week of gains

What’s driving markets

U.S. stocks were edging higher on Friday afternoon, after earlier losses, with major benchmarks on track for a third straight week of gains amid a slide in Treasury yields.

“You’re not seeing broad-based selling pressure” in equities, said Keith Lerner, co-chief investment officer at Truist Advisory Services, in a phone interview Friday.

While the S&P 500’s technology-related stocks were “taking a breather” after a strong rally this month, he said there’s some “risk-on” trading in the market when looking at cyclical-oriented areas such as small-cap stocks and the S&P 500’s energy, financials and industrials sectors.

The recent move down in interest rates in the Treasury market has been supporting equities, according to Lerner. Treasury debt yields have fallen as many investors anticipate that the Federal Reserve could start cutting its benchmark rate next year after an easing in inflation.

“The major reason for the recent rally is that Wall Street had convinced itself that the Federal Reserve is all done with hiking rates this cycle,” said Eddy Elfenbein, the manager of the CWS AdvisorShares Focused Equity ETF and blogger of Crossing Wall Street. “Investors now expect the Fed to start cutting rates in less than six months.”

But San Francisco Fed President Mary Daly said Friday that the central bank should wait on interest-rate policy given the high uncertainty surrounding the outlook for the U.S. economy. Boston Fed President Susan Collins also said in an interview with CNBC on Friday, “I wouldn’t take additional firming off the table,” even after softer inflation data released earlier this week.

In the bond market, the yield on the 10-year Treasury note was trading down slightly Friday afternoon at around 4.43%, according to FactSet data, at last check.

Within equities, six of the S&P 500’s 11 sectors were rising in afternoon trading.

The index’s energy sector
XX:SP500.10
had the biggest gains, up around 2.5%, followed by more modest increases for consumer discretionary
XX:SP500.25,
financials
XX:SP500.40,
industrials
XX:SP500.20,
utilities
XX:SP500.55
and materials
XX:SP500.15,
FactSet data showed.

As for small-cap U.S. stocks, the Russell 2000 index
RUT
was climbing a sharp 1.3%.

Read: Surge in bullish bets could help push stocks higher with $2.4 trillion in options set to expire Friday

Meanwhile, investors were weighing economic data released Friday that showed construction of new homes rose 1.9% in October. They were also digesting corporate earnings reports, with shares of retailer Gap Inc.
GPS,
+29.48%
surging after the company said it didn’t have to discount as much during the third quarter as inventories fell.

“There’s a lot of positive momentum in the market,” said Mark Hackett, Nationwide’s chief of investment research. “Things are mostly in pretty good shape right now.”

Companies in focus

• Applied Materials Inc.
  AMAT,
  -4.04%
  stock dropped more than 4% after a report that the chip maker is under a criminal investigation by the Justice Department for potential export violations. The news overshadowed a positive earnings report, as Applied Materials on Thursday afternoon reported quarterly results that topped analysts’ revenue and earnings estimates.

• Gap Inc.
  GPS,
  +29.48%
  soared around 28% after the clothing retailer reported third-quarter results that beat expectations, as easing pressure to cut prices and a rare same-store sales gain from Old Navy offset mixed store performances and lingering holiday-season caution.

Steve Goldstein contributed to this report.