Shares turned from losses to gains on Friday, capping a volatile week of trading. Another high inflation reading did not deter investors from buying stocks as December inflation was not fast enough to convince investors that the Federal Reserve will raise interest rates faster than currently expected.
Dow Jones Industrial Average
increased by 565 points, or 1.7%. the
gained 2.4%, while
jumped 3.1%. The indices had fallen more than 1% earlier in the day.
It’s been a wild week. The S&P 500 ended the week with a 0.8% gain, but over the five-day period the index hovered around 5% from a weekly low of 4,222 points to end at 4 432 points Friday afternoon. The last time the S&P 500 climbed this much in a week of trading was in November 2020. In the past five years, such a move has only happened 15 times.
Friday saw the release of the latest reading of the Personal Consumption Expenditure Index, which rose 5.8% year-on-year, higher than the previous reading of 5.7%. The base rate, which excludes more volatile food and energy prices, rose 4.9%, above expectations of 4.8%. This indicates that there is a slightly higher probability that the Fed will raise the benchmark lending rate more than four times the current expectation.
But the stock market has already reflected a darkening economic outlook. The S&P 500 is still down nearly 8% from its all-time high in early January and had previously dipped into correction territory. The index is also still one tick below its 200-day moving average. While this shows that investors have lost some confidence in the broader uptrend in the market, it does mean that if market participants don’t see a deteriorating outlook from here, some will start buying more. actions.
“We’re so oversold,” said Rhys Williams, chief investment officer at Spouting Rock Asset Management. “There was one body shot after another.”
Others agree that stocks have already reacted to signs that the Fed might raise rates more aggressively.
“Futures were much lower [Friday]said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management Company. “The fear was that inflation would be much worse and the Fed would hike 50 basis points. A 50 basis point hike is not an option.
The Fed typically changes the benchmark lending rate by just 25 basis points.
“After a wild week of trading, the general consensus on Wall Street is that the Fed will raise rates in March by 25 basis points,” wrote Edward Moya, senior market analyst at Oanda. “The case for the March liftoff to be a 50 basis point increase…seems unlikely.”
The bond market, too, was scared of a more aggressive Fed earlier.
The 2-year Treasury yield hit 1.23%, a new pandemic-era high. It had not reached this level since February 2020. The rise in yields reflects the fact that bond investors anticipate several interest rate hikes from the Fed over the next two years as the central bank tries to fight against a high inflation. The yield fell back to 1.18%. The 10-year Treasury yield hit 1.84% on Friday, before falling back to close 1.79% on Thursday.
The Fed indicated in its statement on Wednesday that it was ready to raise rates soon – and markets are currently expecting four hikes this year. But whether the Fed will implement more than four rate hikes is still an unknown. Markets fear the Fed will raise rates enough to dampen economic growth.
The Nasdaq outperformed the other two major indices on Friday, in part due to better-than-expected earnings from Apple. Apple stock (ticker: AAPL) ended up 7%. The Nasdaq’s movements are weighted by the market capitalizations of its constituents – and Apple has a large market capitalization.
Overseas, the pan-European
fell 1%, while Hong Kong
Hang Seng Index
ended down 1.1%.
Here are five stocks moving on Friday:
(TSLA) The stock was recovering from an 11.6% drop on Thursday after the results. The stock gained 2.1% on Friday.
(HOOD) rose 9.7% after the company reported a loss of 49 cents per share, higher than the expected loss of 35 cents.
(CAT) fell 5.2% after the company reported earnings of $2.69 per share, beating estimates of $2.27 per share, on sales of $13.8 billion, over above expectations of $12.6 billion.
(CL) fell 0.4% after the company reported earnings of 79 cents per share, in line with estimates, on sales of $4.4 billion, below expectations of $4.2 billion .
(TEAM) gained 9.7% after the company reported earnings of 50 cents per share, beating estimates of 39 cents per share, on sales of $689 million, above expectations of $641 million. dollars.