Stocks end higher on Wall Street, still down for the week

Stocks end higher on Wall Street, still down for the week

Wall Street capped a week of losses with a broad rally for stocks on Friday, as investors welcomed solid earnings from major companies and an upbeat report on consumer sentiment and inflation expectations.

A July survey from the University of Michigan found that inflation expectations have held steady or improved along with general consumer sentiment. The report was welcomed after several government reports this week showed that consumer prices were extremely hot, along with business wholesale prices in June.

The report also bodes well for investors looking for signs that the Federal Reserve may finally ease its aggressive policy to fight inflation.

The Standard & Poor’s 500 rose 1.9%, snapping a five-day losing streak. Still, the gains weren’t enough to pull the benchmark index out of the red for the week.

The Dow Jones industrial average rose 2.1% and the Nasdaq rose 1.8%. Small company stocks outperformed the broader market, sending the Russell 2000 index 2.2% higher. But these indices also posted losses for the week.

“Investors are saying, ‘Look, we’ve seen this before, where the market goes up sharply one day, only to turn around the next,'” said Sam Stovall, chief investment strategist at CFRA.

Technology stocks, banks and healthcare companies made the biggest gains. PayPal rose 6.3%. UnitedHealth Group rose 5.4% after raising its profit forecast for the year following a strong earnings report. Citigroup jumped 13.2% to be the biggest gainer in the S&P 500 after reporting encouraging financial results.

Bond yields have mostly fallen. The 10-year Treasury yield fell to 2.92% from 2.96% late Thursday. The two-year Treasury yield rose to 3.14% from 3.13% late Thursday.

Inflation and its impact on businesses and consumers remains a key focus on Wall Street. The Federal Reserve has raised interest rates in an effort to put the brakes on economic growth and curb rising inflation. The Fed has already raised rates three times this year.

Wall Street worried that the Fed might go too far in raising rates and actually bring about a recession. Investors are closely watching economic reports for signals about how the central bank might respond, and recent upbeat consumer sentiment reports have raised the possibility of the Fed softening current policy.

Traders backed away from their bets that the Fed would issue a giant rate hike of 1% at its next policy meeting in two weeks. According to CME Group, they now see a 30.9% chance of this happening. It has dropped significantly since Thursday. They now see a 69.1% chance of three-quarters of a percentage point rate hike.

Economic data also shows that retail sales remain strong. A government report showed retail sales rose 1% in May to June, topping economists’ expectations, while prices for everything from food to clothing rose.

All told, the S&P 500 rose 72.78 points to 3,863.16. The index has resisted a dip below 3,800, noted Stovall.

“Whenever we get down to around 3,800 and we bounce off that it’s a confirmation that there are a lot of buyers at that level,” he said. “And we saw the market retest yesterday to push that level higher and then go with it today with encouraging fundamentals.”

The Dow rose 658.09 points to 31,288.26 and the Nasdaq added 201.24 points to 11,452.42. The Russell 2000 rose 36.87 points to 1,744.37.

Overseas, stocks in Hong Kong and Shanghai fell after a report showed the Chinese economy shrank 2.6% in the January-March period, compared with an already weak quarter-on-quarter rate of 1.4%. China locked down major cities earlier this year to contain Covid-19 cases, and further outbreaks elsewhere in China and Asia this week have raised concerns that COVID-19 control could be regained on top of existing warnings.

Investors are reviewing the latest batch of corporate earnings to get a clearer picture of the impact of inflation on businesses. Banks closed things out this week with mixed results. Several major companies are on deck for the coming weeks, including Johnson & Johnson, Netflix, United Airlines and Twitter.

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