US stocks rebounded this week from a sharp decline that hit the market for three weeks in a row after recent comments from Federal Reserve officials boosted sentiment and data on inflation expectations eased.
The S&P 500 strengthened by more than 3 percent on Friday, the most since May 2020. It closed the week by 6.5 percent, making it the best week in almost a month. The government bond rally fell silent on Friday, but the two-year policy-sensitive yield in the US still fell the biggest weekly decline since mid-May.
While traders struggled with a flood of data this week, the mood improved on Friday after the University of Michigan’s long-term consumer inflation expectations stabilized from the originally reported 14-year high, potentially reducing the need for sharper rate hikes. Investors were also reassured by Fed President St. Louis James Bullard, who said fears of an American recession are exaggerated. Fed Chairman Jerome Powell reassured lawmakers this week in his determination to cool inflation, but some traders found solace in his comments as a signal that the central bank would consider the likelihood of a recession as it tries to curb inflation.
“We have now seen a few days of positive performance in the market and this indicates a very short-term bear rally,” said Sylvia Jablonski, CEO of Defiance ETF, over the phone. “The fact that we have a meeting of the Fed and any testimony of the Fed, apart from other bad news, could continue for a few more days.”
According to her, the results season will reveal whether the rally will continue.
Others are still waiting for bond markets to respond to recent Fed comments and economic data.
“Volatility in the fixed income market was even higher than in the stock market when we consider the move against the VIX,” said John Flahive, head of fixed income investment at BNY Mellon Wealth Management. “It really boosted all the uncertainty in all the capital markets, and one of our catalysts that we would need to calm the stock market to catch on a little bit would really be to calm the bond markets.”
Elsewhere, bitcoin rose to around $ 21,000. The dollar has fallen. West Texas Intermediate oil rose after a decline compared to the previous two sessions. Falling commodity prices have helped ease market measures of inflation expectations.
“The Fed appears to have succeeded, at least temporarily,” in its mission to cool the overheated economy, Lewis Grant, senior portfolio manager at Federated Hermes, wrote in a note to clients. “Commodity prices have fallen from their highs as fears of a recession grow.”
New home sales in the United States jumped in May, reflecting gains in the west and south and interrupting months of slippage as the residential real estate market adjusts to rising borrowing costs and rising prices. The increase in sales may reflect that some buyers will block their mortgage rate in anticipation of even higher borrowing costs.
Some of the main market movements:
- The S&P 500 index rose 3.1 percent at 4:00 PM New York time
- The Nasdaq 100 rose 3.5 percent
- The Dow Jones Industrial Average rose 2.7 percent
- The MSCI World Index rose 0.4 percent
- The Bloomberg Dollar Spot index fell 0.3 percent
- The euro rose 0.3 percent to $ 1.0556
- The British pound rose 0.2 percent to $ 1.2284
- The Japanese yen fell 0.2 percent to 135.21 per dollar
- Yields on 10-year government bonds rose by five basis points to 3.13 percent
- Germany’s 10-year yield rose one basis point to 1.44 percent
- Britain’s 10-year yield fell one basis point to 2.30 percent
- West Texas Intermediate oil rose 2.9 percent to $ 107.34 a barrel
- Gold futures fell 0.1 percent to $ 1,827.20 an ounce
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