Stocks close turbulent week with biggest gains of the year

Wall Street ended a volatile trading week on Friday with a late afternoon shopping spree that saw the major stock indices deliver their biggest gains of the year and break a three-week loss streak.

The S&P 500 was up 2.4%, with almost everything coming in the last hour of trading. The Dow Jones Industrial Average rose 1.7% and the Nasdaq rose 3.1%.

The strong finish marked a reversal for the indexes, which were all in the red earlier in the day. The Nasdaq made the biggest reversal, recovering from a 0.9% deficit. Friday was just the latest in a series of sudden ups and downs this week.

Markets were nervous as investors tried to gauge how aggressively the Federal Reserve will move to ease its historic support for the markets and the economy. Volatility is likely to increase as investors closely monitor the impact of rate hikes on the broader economy and financial markets.

“I don’t think we’re out of the loop with this kind of insane market behavior,” said Liz Ann Sonders, chief investment strategist at Charles Schwab.

The S&P 500 rose 105.34 points to 4,431.85. The index’s biggest gain since June 2020 comes late in a week when investors have been eyeing the S&P 500 for what market watchers call a “correction.” That’s when an index loses more than 10% of its value from a record high. The index is now 7.6% below the last record reached on January 3.

The Dow gained 564.69 points to 34,725.47 and the Nasdaq rose 417.79 points to 13,770.57. The tech-heavy index got a boost as tech stocks rose, led by Apple. The iPhone maker rose 7% after reporting strong financial results. Microsoft rose 2.8%.

Bond yields were slightly lower. The 10-year Treasury yield fell to 1.78% from 1.81% at the end of Thursday.

Investors expect the Fed to begin raising interest rates in March and are now anticipating five or more increases of a quarter point each as the most likely path for the central bank this year. Sentiment follows the latest Fed statement and comments from Chairman Jerome Powell that inflation is “slightly worse” than it was in December. The Fed also plans to phase out its bond purchases in March and will likely begin shrinking its balance sheet at some point, a move that will have a similar effect to a rate hike.

Powell has acknowledged that high inflation pressures businesses and consumers is not loosening its grip and could force the Fed to be more aggressive in raising interest rates..

Concerns about rising inflation and how the Fed’s response will affect stock prices has kept investors on their toes.

“That’s really where we’ve seen these volatility swings increase in recent weeks,” said Bill Northey, senior investment director at US Bank Wealth Management. “The market is trying to diagnose and process the amount of (Fed) policy adjustment needed based on an unknown set of factors.”

The latest round of corporate earnings shows that companies continue to struggle with supply chain issues, raw material costs and other inflationary pressures.

Oreo cookie maker Mondelez fell 1.6% after his latest warning about inflation-lowering operations in North America. Hard drive maker Western Digital fell 7.3% after providing equally disappointing updates on inflationary pressures.

Additional government reports also show that consumers face higher prices and may discourage spending. A price measure closely monitored by the Fed rose 5.8% last yearthe strongest increase since 1982. The Commerce Department report also said consumer spending fell 0.6% in December, while purchases of cars, electronics and clothing declined.

Inflation concerns and concerns about the impact of rising interest rates converged this week with concerns over a possible conflict between Ukraine and Russia causing energy prices to rise. A conflict could also distract countries from focusing on the ongoing virus pandemic, which continues to threaten economic growth with every wave of increasing COVID-19 cases.