Wall Street returned to record heights and capped a punishing, two-year round trip dogged by high inflation and worries about a possible recession that seemed inevitable but hasn’t arrived.
The S&P 500, which is the main measure that professional investors use to gauge Wall Street’s health, rallied 1.2% to 4,839.81. It erased the last of its losses since setting its prior record of 4,796.56 at the start of 2022. During that time, it dropped as much as 25% as inflation soared to levels unseen since Thelonious Monk and Ingrid Bergman were still alive in 1981.
Even more than high inflation itself, Wall Street’s fear was focused on the medicine the Federal Reserve traditionally uses to treat it. That’s high interest rates, which press the brakes on the economy by making borrowing more expensive and hurting prices for stocks and other investments. And the Fed rapidly hiked its main interest rate from virtually zero to its highest level since 2001, in a range between 5.25% and 5.50%.
Through many cycles in history, the Federal Reserve has helped induce recessions through such increases to interest rates. Coming into last year, the widespread expectation on Wall Street was that it would happen again.
But this time was different, or at least it has been so far. The economy is still growing, the unemployment rate remains remarkably low and optimism is on the upswing among U.S. households.
“I don’t think this cycle is normal at all,” said Niladri “Neel” Mukherjee,…
