Stocks rally, driving Wall Street to a rare winning week

Stocks rallied this week as pressure from rising Treasury yields lets up somewhat and investors speculatethe Federal Reservemay not have to be as aggressive aboutraising interest ratesas earlier thought as it fights to control inflation.

The gains are a reprieve from Wall Streets tumble through most of the year, caused by the Fed’s and other central banks’ slamming into reverse on the tremendous support fed into markets through the pandemic. In hopes of beating downpunishingly high inflation, central banks have raised interest rates and made other moves that hurt prices for investments and threaten to slow the economy enough to cause a recession. More such moves are sure to come.

It has been a good week, said Randy Frederick, managing director of trading & derivatives at Charles Schwab. It’s weird. At least in 2022, weve only had a couple of weeks where we ended up just positive. It looks pretty similar to what we saw right around the end of May, and that one of course fizzled out.

The S&P 500 rose 116.01 points to 3,911.74. The Dow climbed 823.32 points to 31,500.68. The Nasdaq rose 375.43 points to 11,607.62.

Smaller company stocks also rallied. The Russell 2000 rose 54.06 points, or 3.2%, to 1,765.74.

Parts of the US economy are still red-hot, particularly the jobs market, but some discouraging signals have emerged recently. A report on Friday confirmed sentiment among consumers sank to its lowest point since the University of Michigan began keeping records, hurt in particular by high inflation. Another lowlight this week suggested the US manufacturing and services sectors arent as strong as economists thought.

Such weakening data raise concerns about the strength of the economy. But they also can be good for financial markets, as paradoxical as that may seem.

They could mean less upward pressure on inflation, which would ultimately mean the Federal Reserve doesnt have to raise rates so aggressively. And interest rates drive trading for everything from stocks to cryptocurrencies.

We have seen a cooling off in a lot of areas, certainly. Gasoline purchases are down, housing prices appear to be cooling across the board, Frederick said. To me all of this speaks to the fact what the Fed is doing now appears to at least be having some impact. Now, whether or not its sufficient to bring inflation down, I dont think we know yet.