Wall Street capped a choppy trading week with a broad stock market rally on Friday, as the S&P 500 posted its fourth consecutive weekly gain.
The benchmark index closed 1.7 percent higher for a weekly gain of 3.3 percent. The S&P 500 hadn’t performed this well since November.
The Dow Jones Industrial Average rose 1.3 percent, while the Nasdaq and Russell 2000 indexes of smaller companies both closed 2.1 percent higher. Each index also posted solid weekly gains.
Technology stocks were key drivers of the rally. Crude oil prices fell and bond yields were mixed.
Trading was choppy for most of the week, but major indexes rallied on Wednesday after a report showed inflation had cooled more-than-expected last month. Another report on Thursday showed that wholesale inflation also slowed more than expected.
Cooler-than-expected inflation readings have fueled investor hopes that inflation may be nearing its peak and that the Federal Reserve may be less aggressive in raising interest rates, its main anti-inflation tool.
“The data we’ve received this week is all consistent with the notion that we are in the midst of our highest inflation rates on a monthly basis,” said Scott Ladner, chief investment officer at Horizon Investments. “And we’ve been waiting for this for months. And it looks like if that’s the case, we’ve probably seen the peak of Fed hawking as well.”
The S&P 500 rose 72.88 points to 4,280.15, while the Dow gained 424.38 points to 33,761.05. The Nasdaq gained 267.27 points to 13,047.19.
Small company stocks were also up sharply, suggesting investors are confident about the economy. The Russell 2000 was up 41.36 points to 2016.62.
About 95 percent of stocks in the S&P 500 rose, with technology companies driving much of the rally. Chip manufacturer Nvidia increased by 4.3 percent.
The central bank has raised interest rates in hopes of slowing the economy and cooling the hottest inflation in four decades, but investors fear it could hit the brakes too aggressively and steer the economy into recession.
On Friday, a University of Michigan poll showed consumer sentiment is stronger than economists were expecting. Nonetheless, inflation remains painfully high. This means that the Fed is likely to stay on track with its rate hikes until it is certain that prices have peaked and are going down.
The Fed’s last two hikes were 0.75 percentage points. Traders now see about a 60% chance that the central bank will hike overnight rates by half a percentage point at its next meeting.
“The strength of the market is based on the assumption that inflation has peaked and the Fed can relax, but that might be a little too complacent,” said Liz Ann Sonders, chief investment strategist at Charles Schwab.
The yield on the 10-year Treasury fell to 2.84 percent from 2.88 percent late Thursday. It stays below the two-year yield. This is an unusual reversal of the expectation that borrowing money for a longer period should cost more than a shorter period. When investors demand a higher yield on a short term such as 2 years than on a longer term such as 10 years, this is seen by some investors as a reliable signal of an impending recession. The economy has already contracted for two quarters in a row.
Next week, the Commerce Department will release its July retail sales report and retail giant Walmart will release its latest financial results.
Investors can also gauge the health of the housing market when they get a report on July home sales and Home Depot’s latest earnings.
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