Wall Street stocks snap seven-week losing streak

US stocks snapped a seven-week losing streak on Friday as investors bet that easing economic data would be enough to curb the Federal Reserve’s tightening of monetary policy.

The US blue chip stock index, the S&P 500, ended the week up 6.6%, its best result since November 2020, ending the longest weekly losing streak since 2001. for the week.

Weaker economic data, coupled with early signs that inflation may have peaked, gave investors ample reason to lower their expectations about how aggressively the US central bank will raise interest rates. interest. Higher rates increase borrowing costs for businesses and can reduce future earnings.

Despite the rebound in share prices, some investors remain wary. The positive narrative only holds if the weakening data doesn’t predict a recession, and if the Fed’s campaign to curb inflation succeeds before it drags down growth too much.

“We still believe this is not the end of the downdraft, but more of a bear market bounce,” said Alex Veroude, chief investment officer at Insight Investment.

Tuesday was the only day the stock posted a loss, following weak manufacturing data and a lower-than-expected new home sales report. That data added to the jitters following a series of weak first-quarter earnings reports from prominent retailers including Target and Walmart last week.

And on Wednesday, the release of the minutes of the Fed’s latest monetary policy meeting confirmed a dovish tone, but still not as dovish as some analysts had expected.

On Thursday, markets were buoyed by better-than-expected earnings from major retailers Macy’s, Dollar General and Dollar Tree, which helped offset last week’s concerns about the sector.

On Friday it offered another boost when official data showed that personal spending, a sign of inflationary pressure in the US economy, eased slightly.

Breakeven inflation rates, a market measure of inflation expectations, also fell during the week. Expectations for where the key Fed rate would be for December fell from 2.8% to 2.6%, suggesting a smaller series of hikes ahead.

Investors, spooked by recent losses, have stopped to question whether this year’s sell-off was overdone. Even after last week’s gains, the S&P 500 is down 12.8% this year, while its total market capitalization is down $6.8 trillion from its peak in January.

“General sentiment is very bearish,” said Paul Leech, co-head of global equities at Barclays. “But people are also trying to reconcile the lack of positive catalysts ahead with the amount of bad news already in price.”

Some analysts also pointed to the likelihood that recent gains in Treasuries and losses in stocks have prompted some investors to rebalance their portfolios back into stocks, supporting share prices. In the week through Wednesday, more than $21.8 billion poured into US equities, the most in 10 weeks, according to Bank of America.

The surge in US stocks helped boost stocks around the world. The FTSE All World Index gained 4.9 percent for the week, narrowly avoiding a record number of weekly losses. The Stoxx 600 index across Europe ended the week 3 percent higher and the FTSE 100 rose 2.6 percent in the UK, where data also showed weakness.

Business activity in Britain has stagnated, according to an 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, driven largely by higher commodity prices due to the war in Ukraine, is expected to hit 9 percent. cent in May.

Some investors remain nervous, concerned about the dilemma facing central banks, whether to allow inflation to soar to stem falling asset prices and slower growth, or continue to raise rates to stifle inflation at risk. to trigger a recession.

“The market doubts the Fed’s ability to deliver on policy,” Michael Pintar, trade strategist at Société Générale, said in a note to bank clients Thursday night. “I think we will get to a point in the next couple of months where it becomes obvious that market expectations are wrong and rates will go up along with volatility.”

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