Wall Street stocks rallied on fresh signs that inflation has peaked and consumer spending in the world’s biggest economy is continuing apace.
The blue-chip S&P 500 share index added 1.7 per cent in afternoon trading in New York, putting it on track for its first weekly gain in eight weeks and to snap its longest losing streak since 2001.
The technology-focused Nasdaq Composite rose 2.5 per cent, although it remained more than 25 per cent below its all-time high of last November.
The core personal consumption expenditures price index, a measure of underlying inflation favoured by the Federal Reserve, rose 4.9 per cent in April from the same month last year, down from 5.2 per cent in March.
The same report also showed overall consumer spending increased 0.9 per cent in April from the previous month. Still, investors remained sceptical about how long the stock market rally would last.
“We have central banks [raising rates], inflation, war in Ukraine and China slowing down,” said Valentijn van Nieuwenhuijzen, chief investment officer at NN Investment Partners, a Dutch investment group. “We’ve had quite a long string of negative weekly performance so its unsurprising to get the occasional bounce,” he added.
“But it is pretty clear that there is a very large emotional and psychological factor running through markets,” he added, “and the moves are driven by sentiment rather than any change in the fundamental picture”.
Europe’s main indices were buoyed by the improving confidence, with the regional Stoxx 600 share index closing up 1.4 per cent and Germany’s Dax 40 up finishing 1.6 per cent higher.
Minutes from the Fed’s latest meeting suggested the US central bank would increase its main interest rate by half a percentage point in June and July, although markets have latched on to hopes that the combination of rising borrowing costs and persistent inflation may result in a Fed pause afterward.
“Sentiment overall is very bearish,” said Paul Leech, co-head of global equities at Barclays. “But people are also trying to reconcile the lack of positive catalysts ahead with how much bad news is already in the price.”
“The markets are very keen to look for the exit from all this,” added Nicola Morgan-Brownsell, multi-asset portfolio manager at Legal & General Investment Management. “But in reality we are not near it yet,” she added.
“Inflation may have come down a little bit but it is still a lot higher than it was,” she said, with “consumers likely still having some pain to come” from elevated inflation rates.
The dollar index, which tracks the US currency against six others, recovered from earlier losses to trade flat for the day, after hitting a two-decade high earlier this month.