U.S. stocks jolted higher in the final hour of trading on Friday, erasing weekly losses as persistent hand-wringing about rising bond yields and the re-emergence of long-dormant inflation receded on Wall Street.
A report from the Federal Reserve, a precursor to Federal Reserve Chairman Jerome Powell’s comments in front of Congress next week, offered few signs that the central bank would adopt a more aggressive monetary-policy tacked.
What are the main benchmarks doing?
The Dow Jones Industrial Average DJIA, +1.39% rose 347.51 points, or 1.4%, to 25,309.99, benefiting from sharp gains in components Goldman Sachs Group Inc., underlining rising demand for bank stocks which are likely to profit as benchmark yields march higher. The index has been up for two straight weeks, representing its largest two week climb, up 4.6%, since Nov. 18, 2016, according to WSJ Market Data Group.
The S&P 500 index SPX, +1.60% added 43.34 points, or 1.6%, to 2,747, buttressed by broad sector gains and highlighted by advances of more than 2% in the energy and technology sectors. The two straight weeks of gains for the equity index, up 2.9% over that period, are its most since Feb. 13, 2015.
The tech-laden Nasdaq Composite Index COMP, +1.77% meanwhile, surged 127.30 points, or 1.8%, to end at 7,337.39, snapping a four-session skid, and putting the index just 2.2% shy of its Jan. 26 peak at 7,505.77. It produced its best two-week stretch, up 6.7%, since Oct. 31, 2014.
For the week, the Dow climbed 0.4%, the S&P 500 logged a weekly climb of 0.6%, while the Nasdaq Composite notched a return of 1.4% over the period, outstripping its equity benchmark peers.
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What could drive markets?
In its semiannual monetary-policy report, the Fed signaled that it saw broad improvement in the U.S. economy and pointed to a pickup in inflation toward the end of last year, but didn’t suggest that a rise in prices warranted more aggressive policy action.
Indeed, the Fed stuck to its forecast for inflation to hover at or below its 2% target in 2018. The 12-month rate of inflation based on the Fed’s preferred PCE index stood at 1.7% in December.
The Fed’s summary comes ahead of newly minted Powell’s testimony about the economy before Congress next week.
Powell’s testimony arrives ahead of the Fed’s key monetary-policy convention next month, but after a release of minutes for January on Wednesday rattled investors, already fretting about inflation and bond yields drifting higher.
Wednesday’s minutes sparked a downdraft in equities as the yield of the 10-year Treasury note TMUBMUSD10Y, +0.00% hit a fresh four-year high above 2.956%, undercutting appetite for assets perceived as risky like stocks. Most recently, the 10-year Treasury note was down about basis points at 2.87%.
On Thursday, bond yields moderated after St. Louis Fed President James Bullard cast doubt on the likelihood of four rate rises this year, dampening expectations of a faster pace of action.
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Separately, comments from Treasury Secretary Steven Mnuchin were drawing attention. In an interview with Bloomberg, Mnuchin brushed aside concerns over rising wages, saying these didn’t necessarily have to trigger a rise in overall inflation. The Fed policy report appeared to echo that view.
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What are strategists saying
Doug Cote, chief market strategist at Voya Investment Management, said strong corporate earnings, healthy readings of manufacturing justify an upbeat outlook for stocks and bond yields rising off ultralow levels.
“With that economic growth interest rates are rising and that is a good thing. There is no way the economy can be growing at 3%, as it is now, without the 10 year yield also going up but this is like a high-quality problem,” Cote said.
“Because although it will discount equities and create more volatility, it is a sign that secular stagnation, disinflation…are finally in the rearview mirror and now we’re in a normal market,” he said, referring to a period framed by easy-money policies across much of the globe in the wake of the 2007-09 financial crisis.
“I think it was very impressive move for stocks [Friday] after seeing these heavy market selloffs,” said J.J. Kinahan, chief strategist at TD Ameritrade.
He said dovish remarks by the Fed and the monetary policy report helped eased market jitters.
“I think we are set up for an interesting Monday morning. Can we build on this momentum and go forward or is this as quick fade,” Kinahan said
What did Fed speakers say?
New York Fed President William Dudley spoke out in favor of the effectiveness of quantitative easing as a stimulus tool, arguing against a paper from Wall Street economists saying that it only had a modest impact.
Cleveland Fed President Loretta Mester said the central bank could look into changing its policy framework later in the year, which could mean a change to its current 2% inflation target.
San Francisco Fed President John Williams said the economy is steadily improving and sees a positive outlook which warrant gradual rate hikes, speaking at the City Club of Los Angeles on Friday.
Which stocks were moving?
Shares of Blue Buffalo Pet Products Inc. BUFF, +17.23% soared 17.2% in after General Mills Inc. GIS, -3.59% announced an $8 billion buyout of the company. Shares of General Mills were off 3.6%.
Hewlett-Packard Enterprises Co. HPE, +10.54% shares jumped about 10.5% after the enterprise-focused tech group reporting a strong fiscal first quarter. Read:HP Enterprise earnings jolt stock, but there isn’t much to be excited about
Shares of HP Inc. HPQ, +3.46% rose 3.5% after the consumer-focused tech company beat earnings expectations and raised its full-year forecast.
Shares of Xcerra Corp. XCRA, +0.10% could be active after the company that provides testing technology for semiconductors and electronics said it would terminate its sale to a Chinese group, saying federal approval was too hard to get for the $580 million deal. The company’s shares ended up 0.2%.
How are other assets performing?
European stocks SXXP, +0.22% finished higher on the day taking cues from U.S. equities, while Asian stocks rebounded to mark a second-straight week of gains.
Gold prices GCG8, -0.06% slipped, ending Friday trade lower, while the dollar DXY, +0.19% as gauged by the ICE U.S. Dollar Index DXY, +0.19% rose 0.2% to 89.950. Oil prices CLJ8, +1.27% settled in the green after rig-count data.