Wall Street rises as Fed rate move nears, earnings ramp up

Wall Street kicked off the week with a broad stock market rally Monday, as investors look ahead to a busy week of company earnings reports and grow more confident that the Federal Reserve will turn the screws on the economy less aggressively.

The S&P 500 rose 1.2%, led by tech companies. The gains more than made up for the benchmark index's losses last week. The Dow Jones Industrial Average rose 0.8%, while the tech-heavy Nasdaq composite closed 2% higher. Small company stocks also rose, pushing the Russell 2000 index up 1.3%.

Markets have been churning for weeks with sharp swings in both directions. On one hand, they've benefited from hopes that the nation's high inflation will continue to cool and get the Federal Reserve to loosen up on its blizzard of hikes to interest rates.

On the opposite end, they've taken hits on worries about a possible recession because of rate hikes already pushed through by the Fed.

Monday's gains follow a strong Friday, when stocks rallied on comments from a Fed official seen as a signal that the central bank may raise rates by just 0.25 percentage points next week.

That would be a downshift from last month's 0.50 point increase and from four straight earlier hikes of 0.75 points.

Higher rates intentionally slow the economy by making it more expensive for businesses and households to borrow, so a step down would mean less added pressure. The Fed has already pulled its key overnight rate up to a range of 4.25% to 4.5% from virtually zero early last year, and traders are now betting on a nearly 99% probability that the Fed will raise rates by just a quarter point on Feb.

1, according to CME Group.

The bigger question is how much further the Fed goes from there, and how long it will wait before it cuts interest rates. Such cuts can act like steroids for markets, and Wall Street is hoping they could arrive in the back half of this year.

The Fed, meanwhile, has been adamant that it plans on holding rates high at least until 2024.

The yield on the two-year Treasury, which tends to track expectations for Fed movement, rose to 4.22% from 4.18% late Friday. The 10-year yield, which helps set rates for mortgages and other important loans, rose to 3.52% from 3.48%.