Stocks posted the best stretch of the year, with inflation easing

The stock market has had the best stretch of the year for gains, as investors take comfort from early signs that inflation is slowing and the economy is consolidating.

The S&P 500 Index rose 1.7 percent on Friday, bringing its week-high to 3.3 percent and marking its fourth consecutive positive week, a feat it hasn’t achieved since October. The index is now more than 16 percent higher than its lowest point in June, although it is still 10 percent lower for the year.

The rally stands in stark contrast to the first half of the year, when Wall Street struggled The worst start in half a centuryWith the outbreak of war in Ukraine, rising energy costs, rising interest rates, and rapid inflation have raised investor concerns about the health of the economy.

Federal Reserve officials indicated that their campaign to raise interest rates to tame inflation is far from over. But some investors see recent economic data as the basis for the central bank to do so Move less aggressivelyAlleviating fears that higher borrowing costs could push the economy into a severe recession.

“The panic about inflation and interest rates has peaked, and we are looking at something not quite as dramatic,” said Michael Purvis, founder and CEO of Tallbacken Capital.

The latest CPI report, released on Wednesday, provided a moment of respite for Wall Street, like inflation slowed to 8.5 percent During the year to July, down from the 9.1 percent pace in the previous month. The data provided an early indication that the Fed’s attempt to rein in inflation may have an effect.

What’s more, data show that the economy in July Restore all lost functions in the epidemic, Combined with weeks of better-than-expected earnings reports from companies, it eased some concern among investors that higher rates, which drive up corporate costs, could dig deeper into US companies.

CBOE Vix Volatility Index, also known as Wall Street Fear Scale Because it reflects investors’ sense of uncertainty about stock market movements, it fell below its long-term average of 20 points this week. The VIX has been above this level since April, so the lower reading could be a sign that investor concerns about another downward volatility have subsided.

“We have seen a series of inflationary pressures begin to turn around,” said Patrick Palfrey, chief US equity strategist at Credit Suisse. This, he added, “forces” investors to re-evaluate their trading positions.

Bankers said retail investors helped drive the rally. Sharp rises in so-called meme stocks and slight rises in some cryptocurrencies also indicate significant participation by individual investors.

“The cornerstone of this is the job market, which is very solid,” said James Maserio, co-head of Americas equities at Société Générale. “If you don’t have a job, you don’t buy meme stock.”

Experts also said that stock markets are poised for a rally. Investors have scaled back their bets in the market due to the uncertainty. Volume was also low, with many large investors taking vacations until August. As a result, even small amounts of buying interest helped lift the market, with momentum building as other investors sought returns.

More than $11 billion flowed into funds buying US stocks in the week through Wednesday, according to EPFR Global, the largest in eight weeks.

But some bankers have warned that once markets recover, they could fall again. Short-term gains are not unusual during periods of extended losses, known as bear market rallies.

After the S&P 500 peaked in October 2007, it fell more than 50 percent by November 2008 in the wake of the collapse of Lehman Brothers. The index then rose by about 24 percent within weeks. But the sale is not over yet. The S&P 500 gave up all of those gains in early 2009, before hitting lows in March of that year.

Macerio said the Fed’s mission to bring inflation down to its 2 per cent target was akin to changing the direction of the oil tanker: slow and risky.

“Essentially, what’s built into the system is much more difficult than we can fix in a six-month shift in monetary policy,” he said, warning that stock market problems may not be over yet.

Stocks are higher because inflation expectations have improved and the economic background remains supportive. Although the outlook isn’t as harsh as it used to be, there are doubts about how long the rally could last.

“I am an optimist in the market, but I remain an anxious and nervous bull,” said Mr. Purvis. “We are not out of the woods yet.”