Wall Street closed sharply higher on Friday as signs of peaking inflation and consumer resiliency sent investors into the long holiday weekend with growing optimism that the Federal Reserve will be able to tighten monetary policy without tipping the economy into recession. In Canada, the TSX notched its second straight weekly advance, closing at its highest closing level since May 4.
All three major U.S. stock indexes snapped their longest weekly losing streaks in decades.
The S&P and the Nasdaq suffered seven consecutive weekly declines, the longest since the end of the dot-com bust, while the blue-chip Dow’s eight-week selloff was its longest since 1932.
“The market has now discounted a lot of the negative news, a lot (of which) hit all at once,” said Keith Buchanan, portfolio manager at GLOBALT in Atlanta. “Now we have absorbed that news and the actions the Fed is going to take, and we’re wrapping up earnings season.”
“The signs are lining up and the boxes are being checked that we expect to develop when the market starts to form a bottom,” Buchanan added.
During the S&P’s seven straight weeks of losses, from its April 1 to May 20 Friday closes, the bellwether index shed 14.2% of its value and threatened to confirm it has been in a bear market since its Jan. 3 record closing high.
But this week, in a sharp reversal, the S&P reclaimed much of that lost ground by soaring 6.6%, its best week since November 2020.
“It was inevitable that the losing streak would end,” said Tim Ghriskey, senior portfolio strategist Ingalls & Snyder in New York. “Corrections and bear markets are followed by ‘up’ markets.”
Generally upbeat earnings guidance and solid economic indicators have fueled hopes that the Fed’s hawkish maneuvers to contain decades-high inflation will not cool the economy into contraction.
Data released on Friday showed better-than-expected consumer spending and appeared to confirm that inflation, which has dampened corporate earnings guidance and weighed on investor sentiment, has peaked.
This, combined with the minutes from the central bank’s most recent policy meeting, which reaffirmed its commitment to rein in spiking prices while remaining responsive to economic data, helped boost risk appetite.
The Toronto Stock Exchange’s S&P/TSX composite index ended up 216.40 points, or 1.1%, at 20,748.58. It was the sixth straight day of gains for the index. For the week, it climbed 2.7%, its biggest advance since February.
“It’s clear to me that the market bottomed last week,” said Barry Schwartz, portfolio manager at Baskin Financial Services.
“The headlines may still be lousy for months to come - they may even get worse - but we’ve definitely had a short-term bottom. ... There is a sense that there will be a recession in some types of companies but its not pervasive,” Schwartz said.
The Toronto market’s technology group climbed 2.4%, while heavily-weighed financials ended 1.3% higher as National Bank of Canada closed out a mostly strong quarter for Canadian lenders, reporting second-quarter profit that beat estimates.
Energy was up 1.7% as oil gained 0.9% to $115.14 a barrel on signs of a tightly supplied market.
Sharp declines for the shares of some cannabis producers weighed on the healthcare sector.
Aurora Cannabis fell 38.3% after it upsized its previously announced bought deal financing, and Canopy Growth Corp was down 14.6% after it reported a larger adjusted core loss for the fourth quarter.
The Dow Jones Industrial Average rose 575.77 points, or 1.76%, to 33,212.96, the S&P 500 gained 100.4 points, or 2.47%, to 4,158.24 and the Nasdaq Composite added 390.48 points, or 3.33%, to 12,131.13.
All 11 major sectors of the S&P 500 advanced amid light trading, with consumer discretionary, tech and real estate notching the biggest percentage gains.
Shares of Apple Inc, Microsoft Corp and Tesla Inc provided the strongest lift.
First-quarter earnings season is largely in the bag, with 488 of the companies in the S&P 500 having reported. Of those, 77% have beaten consensus expectations, according to Refinitiv.
Ulta Beauty gained 12.5% following its upbeat quarterly earnings report.
Computer hardware company Dell Technologies Inc surged 12.9% after beating quarterly profit and revenue estimates.
Apparel retailers Gap Inc and American Eagle Outfitters trimmed their annual profit forecasts. The latter dropped 6.6%, while the former rebounded and ended up 4.3%.
Trading volumes were light ahead of the long weekend, with U.S. stock markets closed on Monday in observance of Memorial Day.
Volume on U.S. exchanges was 10.92 billion shares, compared with the 13.13 billion average over the last 20 trading days. Advancing issues outnumbered declining ones on the NYSE by a 6.49-to-1 ratio; on Nasdaq, a 4.13-to-1 ratio favored advancers. The S&P 500 posted 3 new 52-week highs and 29 new lows; the Nasdaq Composite recorded 40 new highs and 84 new lows.
U.S. Treasury yields ended near six-week lows on Friday as concerns about growth and signs that inflation may have peaked led investors to speculate that the Federal Reserve may not raise rates as much as previously expected.
Benchmark 10-year yields have dropped from 3-1/2 year highs reached earlier this month on concerns that the U.S. central bank’s aggressive rate hikes could tip the economy into recession.
Now, those fears have also increased speculation that the Fed could pivot to a more dovish stance if the economy cools.
“That’s been this week’s story ... people questioning how high the terminal rate will ultimately be, but I think it’s still going to be too soon to say with any high conviction just given the fact that we’re going to need to see more inflation data,” said Benjamin Jeffery, interest rate strategist at BMO Capital Markets in New York.
Fed funds futures traders are pricing in 50 basis point hikes at each of the Fed’s June and July meetings, and a chance of a similar move in September.
They have pared their expectations on how high the Fed will ultimately raise its benchmark rate, with the federal funds rate now expected to be at 2.89% in March, compared with expectations on Monday of 3.03%. It is currently at 0.83%.
Benchmark 10-year note yields fell two basis points to 2.743%. They are holding just above a six-week low of 2.706% reached on Thursday and are down from 3.203% on May 9.
Yields briefly bounced after data showed that U.S. inflation eased in April, boosting hopes that the economy will suffer less damage if the worst of soaring price pressures have passed.
The personal consumption expenditures (PCE) price index gained 0.2% last month after shooting up 0.9% in March. In the 12 months through April, the PCE price index advanced 6.3% after jumping 6.6% in March.
Jobs data for May released next Friday is the next major U.S. economic focus. It is expected to show that employers added 320,000 jobs during the month, according to the median estimate of economists polled by Reuters.
Canadian government bond yields were mixed across the curve. The 10-year was little changed at 2.793%, after touching a four-week low of 2.743% on Wednesday.
Reuters, Globe staff
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