U.S. stocks close higher to mark fourth straight week of gains

U.S. stocks rose on Friday to deliver a fourth straight week of gains on Wall Street as early signs of inflation stabilizing dampened investor expectations for more aggressive interest rate hikes from the Federal Reserve.

The four-week streak of gains is the longest since late 2021, before worrying economic readings pushed stocks into a bear market.

The blue-chip S&P 500 index rose 1.7% on Friday, posting a weekly gain of 3.3%, while the tech-heavy Nasdaq rose 2.1% for a weekly gain of 3 .1%. The indexes are up 18% and 24%, respectively, from their lows reached in mid-June. However, they remain well below the records reached months ago.

US inflation data this week came in below expectations, with the US consumer price index rising 8.5% year-on-year in July, below economists’ forecast of 8.7 %. The United States also reported this week that prices paid to U.S. producers for goods and services fell unexpectedly last month due to lower fuel costs.

Interest rate expectations fell as prices fell, although various Federal Reserve officials said inflation remained elevated and well above the central bank’s 2% target. The Fed’s recent higher rates – which increase borrowing costs for businesses – and the resulting specter of recession weighed on equities at the start of the summer.

Futures market expectations for the level of Fed benchmark interest rates by the end of the year fell from 3.6% ahead of Wednesday’s CPI report to 3.5% on Friday . It comes after soaring employment figures last week which showed wages remain high across all sectors and unemployment is at its lowest level before the coronavirus pandemic.

“Last week we saw very strong macro data, especially the jobs numbers. People were worried that the Fed might accelerate rate hikes again. [producer price index] the data could be the first signs that we are in fact getting the soft landing the Fed promised,” said Tom Graff, chief investment officer at Facet Wealth.

“I’m optimistic that the bottom has already been reached,” Graff said.

A consumer sentiment index released Friday by the University of Michigan also signaled that consumers are more optimistic about the state of the US economy than expected by economists.

In Europe, the regional Stoxx 600 ended the day up 0.2%, while the German Dax rose 0.7%. London’s FTSE 100 closed up 0.5%.

Confidence in the economy was less evident in the Treasury market, however, where the yield on the benchmark 10-year note, which moves with growth and inflation expectations, fell 0.04 percentage points to 2 .84%. The yield on the two-year note, which moves with interest rate expectations, rose 0.03 percentage points to 3.25%.

“There seems to be a huge disconnect between what the Fed is saying and the market reaction,” said Roger Lee, head of UK equity strategy at Investec. “Our view is that this is a bearish rally.”

Trading volumes may be lower during the summer, which exacerbates asset price movements. “Perhaps we shouldn’t read too much into summer illiquidity, but moves have been all over the place lately,” wrote Deutsche Bank strategist Jim Reid.

In UK debt markets, the yield on the 10-year gilt rose 0.01 percentage point to 2.1%, while the pound slipped 0.6% against the dollar to $1.21. .

The moves came as data showed Britain’s economy contracted 0.1% in the second quarter of 2022 after expanding 0.7% in the previous quarter, with headline numbers close to those expected by economists. and the Bank of England.

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