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U.S. stocks posted their best week since Donald Trump’s election victory, boosted by strong bank profits and a slowdown in core inflation data that raise the chances of further interest rate cuts this year.
The blue-chip S&P 500 closed up 1 percent on Friday, leaving the index up 2.9 percent for the week.
It was its best weekly gain since a 4.7% rise in the five sessions leading up to November 8, when Trump’s election victory raised hopes that tax cuts and deregulation under the new administration would boost American businesses. The tech-heavy Nasdaq Composite index added 2.5 percent, its best weekly gain since early December.
Last week’s rally came as banks like JPMorgan Chase, Goldman Sachs and Citigroup kicked off U.S. earnings season in reporting large increases in profits over the past year, fueled by a boom in commerce and deal-making.
Investor confidence also benefited from figures released this week by the Bureau of Labor Statistics, which show annual figures inflation rose in line with expectations to 2.9 percent in December from 2.7 percent in November. Core inflation, which does not take into account volatile food and energy costs, unexpectedly fell to 3.2 percent from 3.3 percent a month earlier.
This week’s inflation data means sentiment “has moved into excited territory again,” said Mike Zigmont, co-head of trading and research at Visdom Investment Group.
For now, “the boogie man of inflation is no longer a concern [and] the good results and guidance of the reporting banks have further emboldened the bulls,” he added.
Signs of slowing inflation have revived hopes among investors that the Federal Reserve, whose next two-day policy meeting is in late January, will continue its cuts. prices over the next few months.
Blockbuster employment figures released last week prompted some market participants to call for an end to the central bank’s easing cycle, or even a rate hike to offset the potentially inflationary strength of the world’s largest economy.
Stocks have also been under pressure in recent weeks amid a sell-off in global bonds centered on the United States.
The decline halted this week, however, as the policy-sensitive two-year Treasury yield, which closely tracks interest rate expectations, fell from a recent high of 4.42 to cent on Monday at 4.27 percent.
The 10-year yield – a benchmark for global borrowing costs – fell from around 4.8 percent to 4.61 percent over the same period. Yields fall as prices rise.
“Falling rate risks and improving earnings are a decent mix to rejuvenate risk appetite,” said Florian Ielpo, head of macro at Lombard Odier Investment Managers.
“The second half of January could see a reversal of the trends that marked its beginning: lower rates leading to higher stocks,” Ielpo added.
Lower inflation numbers in December could reduce the risk of an imminent rate hike, according to Bank of America strategist Aditya Bhave. But resilient economic growth, strong consumer spending and a strong jobs market nevertheless mean that “we maintain our view that the Fed’s cycle of cuts is over,” he said in a statement. note to customers.
