U.S. stocks ended sharply higher on Friday, with all three major benchmarks suffering three consecutive weeks of losses, as investors appeared to have priced in another giant rate hike of the Federal Reserve.
How Stock Indices Have Performed
The Dow Jones Industrial Average
advanced 377.19 points, or 1.2%, to close at 32,151.71.
The S&P 500
climbed 61.18 points, or 1.5%, to finish at 4,067.36.
The Nasdaq Composite
jumped 250.18 points, or 2.1%, to finish at 12,112.31.
For the week, the Dow Jones gained 2.7% while the S&P 500 climbed 3.6% and the Nasdaq advanced 4.1%, according to Dow Jones Market Data.
What drove the markets
Since the start of the week, markets have absorbed a deluge of hawkish rhetoric from Federal Reserve officials, as well as 75 basis point interest rate hikes from the European Central Bank and a similar decision by the Bank of Canada.
“The rally we’ve seen since the start of this week is partly based on an oversold market” following the sell-off triggered by Federal Reserve Chairman Jerome Powell’s Jackson Hole speech on Aug. 26, a said Keith Lerner, co-chief investment officer of Truist Advisory. Services, in a phone interview Friday. “But we’ve already rebounded a decent amount,” he said, “so there’s not a lot of short-term upside here.”
Still, Lerner said he thinks “people are growing more optimistic about inflation, with lower oil prices being ‘support for this market right now,’ as well as what appears to be a some stabilization in the 10-year Treasury yield after its recent jump.
Investors will get a reading next week on inflation, as measured by the consumer price index, for the month of August.
While CPI data shows inflation easing a bit last month, Lerner said he doesn’t expect that to change the Federal Reserve’s “tough” message in the near term. regarding its efforts to contain the soaring cost of living through interest rate hikes.
The Fed wants to make sure “it’s really crushing inflation,” Lerner said, but added that a much weaker-than-expected reading could prompt the market to reconsider the Fed’s terminal rate and timing.
“We believe this remains a setup where lower inflation readings mean the Fed has less work to do,” Tom Lee, head of research at Fundstrat, said in a note to clients.
Stocks pared gains after Fed Governor Christopher Waller, speaking at an event in Vienna, said the Fed may have to raise its benchmark interest rate “well above 4%” if inflation does not come down.
His comments followed similarly hawkish remarks from St. Louis Fed Chairman James Bullard, who reiterated his support for a 75 basis point rate hike when the Fed meets later this month.
But if anything, the muted reaction to the Fed’s latest batch of speeches suggests that “the market is pricing in [a 75 basis point hike]“, said Joe Saluzzi, co-head of equity trading at Themis Trading. “We are not afraid of it anymore like we were a few weeks ago.
Investors also noted that the decline in the dollar, mainly due to a rebound in the euro, could help support equities.
The ICE US Dollar Index
an indicator of the greenback’s strength against a basket of rivals, fell 0.7% as the dollar retreated from its highest level in 20 years.
The weak dollar has helped “install a bit of a risk modality in equities,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott. “The strength of the dollar is obviously troubling for large American multinationals.”
The 10-year Treasury yield rose 3 basis points on Friday to 3.321%, while short-term yields also climbed. The risky mood helped Meta Platforms Inc.
and other components of the tech-heavy Nasdaq Composite outperformed on Friday.
But Cliff Corso, president and chief investment officer of Advisors Asset Management, expressed concern in a phone interview on Friday that this week’s stock market rebound might not last. That’s partly because he expects inflation to be “sticky” and it’s possible the Fed will “hold” its terminal rate rather than start easing monetary policy next year.
“We believe money will continue to flow into stocks and dividend-oriented sectors,” Corso said. “That’s where we would have our overweights,” while underweight growth stocks with little or no cash flow, he said.
Actions in the spotlight
Shares of Kroger Co. KR jumped 7.4%, after the grocery chain second quarter reported profit and revenue which exceeded expectations and improved its outlook for the full year, citing continued strength in eating-at-home trends.
- DocuSign Inc. DOCUMENT shares soared 10.5% after the electronic agreement company reported a revenue beat and a higher-than-expected third-quarter revenue forecast.
Friday’s jump in bitcoin
––Steve Goldstein contributed to this article.