Stocks jumped on Friday in their best day in two years and posted a large gain for the week, a relatively rare development during a tumultuous time for Wall Street.
The S&P 500 rose 3.1 percent, building on a 1 percent gain the day before and a 2.4 percent gain on Tuesday. Since last Friday it is up about 6.5 percent, only its second weekly gain in the past 12 weeks.
Trading on Friday, which was the S&P 500’s best day since May 2020, turned markedly higher after a survey of consumers showed that their long-term inflation expectations were a touch lower than initially reported. The survey, from the University of Michigan, said consumers expect the prices to rise by an average of 3.1 percent over the next five to 10 years.
That matches the highest level for inflation expectations since 2011, but it was revised down from the 3.3 percent that was reported in preliminary data.
The number was “still on the high end of the range of figures reported in recent decades, but a less noticeable figure than the preliminary June print,” Daniel Silver, an economist at JPMorgan Chase, wrote in a research note following the release.
The State of the Stock Market
The stock market’s decline this year has been painful. And it remains difficult to predict what is in store for the future.
That preliminary pop in inflation expectations had unsettled Federal Reserve officials and helped to motivate their decision to raise rates by three-quarters of a percentage point last week. The Fed aims to keep inflation at 2 percent over time.
The Fed may now take comfort in the knowledge that inflation expectations, while high, are not climbing as much as they had believed. The revision could take pressure off policymakers, who are contemplating whether to raise rates by half a point or three-quarters of a point at their meeting in July. If they don’t feel the need to raise rates as aggressively to cool demand in order to tame inflation, it may reduce the risk that their policies could tip the economy into recession.
Still, even after this week’s gains, the S&P 500 is down nearly 18 percent so far this year and is headed for its worst first-half performance since 1970. Analysts predict more pain ahead before stocks begin to truly recover from the slump.
“I still think that we’re in an environment where we are probably going to still see most rallies fade,” said Edward Moya, a senior market analyst at OANDA.
The clearest sign of “capitulation” among investors fed up with falling markets has been in the bond market, Bank of America noted, with some $190 billion being withdrawn from bond funds so far this year. As the Fed has raised interest rates, Treasury yields have risen sharply from historically low levels, meaning there has been a steep fall in prices.
In fact, analysts at Deutsche Bank estimated that the fall in price for the 10-year Treasury note, down more than 10 percent so far this year, has been the worst start to a year for that key bond market benchmark in more than a century.
On Friday, yields on the 10-year Treasury note climbed to around 3.13 percent.
In other markets, the price of West Texas Intermediate crude oil rose more than 3 percent, to about $107.62 a barrel, though oil prices were still on track to decline for the week, as recession fears cloud the outlook for energy demand.
In Europe, the Stoxx 600 rose 2.6 percent, its best day since March. Hong Kong’s Hang Seng closed with a gain of about 2 percent and Tokyo’s Nikkei 225 rose 1.2 percent.
Bitcoin, which was beaten down at the start of the week, dipping below $20,000 for the first time since December 2020, held on to gains and traded around $21,000.
Jeanna Smialek contributed reporting.