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US stocks posted their best week since Donald Trump’s election victory, boosted by strong bank earnings and softening core inflation data, which raised the chances of further interest rate cuts this year.
The blue-chip S&P 500 closed 1 percent higher on Friday, leaving the index up 2.9 percent for the week.
That marked its best weekly gain since a 4.7 percent gain in the five sessions through Nov. 8, when Trump’s election victory fueled hopes that tax cuts and deregulation under the incoming administration would boost corporate America. The tech-heavy Nasdaq Composite added 2.5 percent, in its best weekly gain since early December.
Last week’s rise came as banks including JPMorgan Chase, Goldman Sachs and Citigroup kicked off the US earnings season by reporting strong earnings growth over the past year, supported by a boom in trades and deals.
Investor sentiment also benefited from figures released this week by the Bureau of Labor Statistics that showed headline annual inflation rose in line with expectations to 2.9 percent in December from 2.7 percent in November. Core inflation, which strips out volatile food and energy costs, unexpectedly fell to 3.2 percent from 3.3 percent a month earlier.
This week’s inflation data meant that sentiment “moved back into excited territory,” said Mike Zigmont, co-head of trading and research at Wisdom Investment Group.
For now, “the inflation head is no longer a concern (and) good earnings and guidance from reporting banks further encouraged the bulls,” he added.
Signs of slowing inflation have revived hopes among investors that the Federal Reserve, whose next two-day policy meeting falls at the end of January, will continue to cut rates over the coming months.
Blockade jobs numbers released last week had some market participants calling for an end to the central bank’s easing cycle or even a rate hike to offset the potentially inflationary strength of the slower economy. biggest in the world.
Stocks were also under pressure in recent weeks amid a global bond selloff centered on the US.
The decline halted this week, however, with the policy-sensitive two-year Treasury yield, which closely tracks interest rate expectations, falling from a recent high of 4.42 percent on Monday to 4.27 percent.
The 10-year yield — a benchmark for global borrowing costs — has fallen from about 4.8 percent to 4.61 percent over the same period. Yields fall as prices rise.
“Rate cut risks and improved earnings form a good mix to renew pent-up 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.
December’s softer inflation numbers could reduce the risk of a quick rate hike, according to Bank of America strategist Aditya Bhave. But resilient economic growth, strong consumer spending and a steady jobs market still mean “we maintain our view that the Fed’s tapering cycle is over,” he said in a note to clients.
