US stocks suffered a seven-week losing streak on Friday as investors gambled that softening economic data would be enough to slow the tightening of the Federal Reserve’s monetary policy.
The US S&P 500 ended the week up 6.6%, its best appearance since November 2020, and ended the longest run of weekly losses since 2001. The high-tech Nasdaq Composite also rose 6.8%. Per week.
Weaker economic data, coupled with early signs that inflation may have peaked, have given investors ample reason to return to expectations about the aggressiveness that the US Federal Reserve will raise Interest rates. Higher rates raise credit costs for companies and can reduce future profits.
Despite the jump in stock prices, some investors remain cautious. The positive narrative exists only if the softening of the data does not predict a recession, and if the Fed’s campaign for containment inflation Succeeds before cutting too far for growth.
“We still think it’s not the end of the draft, but more of a jump in the bear market,” said Alex Verde, chief investment officer at Insight Investment.
Tuesday was the only day they posted a loss, following weak manufacturing data and reporting lower-than-expected new home sales. These figures added to the nervousness following a number of weak profit reports in the first quarter from Marquise retailers such as Target and Walmart last week.
And on Wednesday the publication of the minutes of the Fed’s latest monetary policy meeting confirmed a hawkish but not yet aggressive tone as some analysts had expected.
On Thursday, markets were encouraged by better-than-expected gains from large retailers Macy’sDollar General and Dollar Tree, help offset last week’s concerns about the sector.
Friday offered another boost when official data showed that personal spending – a sign of inflationary pressure in the U.S. economy – weakened slightly.
Inflation rates, the market index for inflation expectations, also fell during the week. Expectations of where the Fed’s key interest rate will be by December have dropped from 2.8% to 2.6%, indicating a smaller series of increases in the future.
Investors, hit by recent losses, stopped to ask if the sale this year was excessive. Even after last week’s gains, the S&P 500 is down 12.8% this year, while its aggregate market value is down $ 6.8 billion from its January high.
“Overall sentiment is very bearish,” said Paul Leach, co-head of global stocks at Barclays. “But people are also trying to reconcile the lack of positive catalysts going forward with some bad news already in the price.”
Some analysts also pointed to the likelihood that recent increases in Treasury bonds, and losses in stocks, caused some investors to rebalance their portfolios back to stock, while supporting stock prices. During the week to Wednesday, more than $ 21.8 billion flowed into U.S. stocks, the highest For the past 10 weeks, according to Bank of America.
The rise in U.S. stocks has helped raise stock markets around the world. The FTSE All-World Index rose 4.9% this week, barely avoiding a record number of weekly losses. 2.6% in the UK, where data also showed weakness.
Business activity in the UK declined according to the S&P Global index based on a survey of purchasing managers. The Bank of England raised interest rates earlier and more aggressively than the Fed, but inflation – largely driven by high commodity prices due to the war in Ukraine – is expected to reach 9% in May.
Some investors remain on edge, worried about the riddle facing central banks, which must allow inflation to warm up to halt asset prices and slower growth, or continue to raise interest rates to suppress inflation while risking a recession.
“The market is questioning the Fed’s ability to implement the policy,” Société Générale trading strategist Michael Pinter noted in a note to the bank’s customers on Thursday evening. “I think we will reach a point in the next few months where it will become clear that market expectations are wrong and prices will move higher along with volatility.”
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