Week 25 in Brief
Wall Street’s main indexes soared on Friday in a broad rally as signs of slowing economic growth and a recent pullback in commodity prices tempered expectations for the Federal Reserve’s rate-hike plans.
All 11 of the benchmark index’s sectors ended at least 1.5% higher. The S&P 500 rose over 3% for its biggest one-day percentage rise since May 2020, while snapping from a three-week losing streak.
How did the major indices perform?
- The S&P 500 rose by more than 3% on Friday, logging a back-to-back day of gains and its first weekly advance since late May. The S&P 500’s more than 6% weekly advance also marked its second-best of 2022 to date.
- The Dow rose by more than 800 points on Friday, or 2.7%, to close at a 5.4% weekly advance.
- The tech-heavy Nasdaq Composite rose 7.5%, its largest weekly gain since March after adding 375.43 points, or 3.34%, to 11,607.62 on Friday.
What drove the U.S. market?
- Fed Chair Powell presented the Federal Reserve’s semiannual Monetary Policy Report to Congress this week. In his testimony, he acknowledged that tightening monetary policy in order to reduce inflation may result in a recession.
- Recent gloomy economic data has rippled across markets, with traders rapidly scaling back their expectations of how much the Federal Reserve will tighten policy this year as growth cools.
- Higher mortgage rates are weighing on home sales. During May, existing home sales fell 3.4%, the fourth straight decline. New home sales rose 10.7% in May, although are down 5.9% year-to-year.
- This raise was much better than expected and defied some of the doom and gloom concerns about the real estate market due to worries that rising mortgage rates and higher prices are making buying a home a pipe dream for many Americans.
- Earnings were giving stocks a lift too, as two consumer companies reported strong results. Shares of cruise line Carnival (CCL) and CarMax (KMX) both soared after each reported improving sales.
How did the European markets perform?
- European markets closed sharply higher on Friday to end a volatile week, as investors around the world assessed inflation and fears of an economic recession.
- The pan-European STOXX 600 index (.STOXX) marked its best session in more than three months. It had hit a fresh 2022 low in the previous session when weaker-than-expected euro zone business activity data weighed on sentiment. The benchmark, which until Thursday was down on the week, posted weekly gains of 2.4% thanks to Friday’s surge, breaking a three-week losing streak.
- UK’s FTSE 100 rose on Friday, lifted by defensive stocks at the end of a choppy week that saw investor anxiety over hawkish central banks, weak economic readings, and heightened risks of a global recession.
- The blue-chip index (.FTSE) climbed 2.7%, with the biggest rises in healthcare and consumer staples stocks that tend to decouple from economic cycles.
- The domestically focused FTSE 250 (.FTMC) rose 2.3%. Both the FTSE 100 and the mid-cap index snapped a three-week run of losses.
How did Asian markets perform?
- Financials and auto firms helped Indian shares end higher on Friday, with the blue-chip indexes registering their first weekly gain in three, as a slide in commodity prices offered some respite from broadening inflationary pressures.
- The NSE Nifty 50 index (.NSEI) closed 0.92% higher at 15,699.25, while the S&P BSE Sensex (.BSESN) climbed 0.88% to 52,727.98. Both the indexes posted weekly gains of 2.7%.
- Hong Kong’s Hang Seng index added 2.1%.
- Seoul’s benchmark index .KS11 rose 2.5%, with shares in Philippines .PSI, Taiwan .TWII, India .NSEI up between 0.8% and 1.3%.
- Stocks in Jakarta .JKSE gained 0.6%, Thailand .SETI up 0.5%, with Singapore .STI and Malaysia .KLSE 0.4% higher.
Bonds and Commodities
- The yield on the benchmark 10-year US Treasury note, which sets the tone for borrowing costs worldwide, has declined markedly over the past two weeks as fears of a recession have come to the fore. The yield stood at 3.13% on Friday, down nearly 0.4 percentage points from an 11-year high hit on June 14.
- Brent crude settled up $3.07, or 2.8%, at $113.12 a barrel by 1610 GMT
- U.S. West Texas Intermediate (WTI) crude settled up $3.35, or 3.2%, at $107.62.
- Gold rose on Friday as the dollar fell and recession fears reinforced its safe-haven appeal, but looming interest rate hikes sent the non-yielding asset into a weekly slide.
- Spot gold rose 0.4% to $1,830.22 per ounce by 1820 GMT, after earlier touching a one-week low of $1,816.10. U.S. gold futures settled up at $1,830.3.
The euro edged higher on Friday as a weaker greenback supported the euro but disappointing German Ifo data kept gains in check. German business morale fell more than expected in June but a recession was not yet in sight despite rising energy prices and the threat of gas shortages. The euro climbed 0.24% to 1.0553 against the dollar.
GBP/USD Sterling ticked up against the dollar Friday as a weaker greenback and better-than-expected retail data allowed investors to look past mounting pressure on British Prime Minister Boris Johnson. By 18:46 GMT, the pound rose 0.24% against the dollar at $1.2291. The currency is up 0.59% on the week to the dollar.
USD/JPY The dollar dipped against the Japanese yen on Friday as traders pared back bets on where interest rates may peak and brought forward their outlook on the timing of rate cuts to counter a possible recession.
Next week will feature many important economic indicators for the U.S. and other major economies. Market watchers will receive new updates on the state of the housing market, with the release of May pending home sales and the S&P Case-Shiller Home Price Index tracking home price growth in April.
The final reading for first-quarter GDP growth will be released Wednesday, along with corporate profits and consumer spending data for the first quarter of the year.
The latest updates on unemployment and inflation rates will be released for the eurozone, along with an update on U.K. GDP growth.
On the corporate earnings front, we can expect earnings from Nike on Monday, tracking the quarter ended May. Other companies scheduled to report earnings include Jefferies Financial Group, General Mills, Micron Technology, and Walgreens, among others.