Stocks rally on Wall Street as investors look for "pockets of optimism"
U.S. stocks closed higher on Wall Street Friday following some encouraging economic data on consumer sentiment and inflation expectations.
The S&P rose 73 points, or 1.9%, to 3,863, while the Dow climbed 2.2% at 31,288. The tech-heavy Nasdaq was up 1.8%. All three indexes, however, were down for the week.
An encouraging July survey from the University of Michigan showed that inflation expectations have held steady or improved, along with general consumer sentiment. It was a welcome update following several government reports this week that showed consumer prices remained extremely hot in June, along with wholesale prices for businesses.
The report also bodes well for investors looking for signs the Federal Reserve might eventually ease off its aggressive policy to fight inflation.
Technology stocks, banks and health care companies made some of the biggest gains. PayPal climbed 5.5%. UnitedHealth Group rose 5% after raising its profit forecast for the year following a strong earnings report. Citigroup jumped 14% after reporting encouraging financial results.
Smaller company stocks rose more than the broader market. The Russell 2000 was 2% higher.
Wall Street has been assessing the latest government reports showing that inflation remains hot and shows no signs of cooling, even as central banks try to loosen its grip on businesses and consumers by hiking interest rates. But markets have been bracing for this for months, buying on dips and looking for silver linings, such as new government data on Friday showing strong consumer spending in June.
"Within the gloom, buyers are attempting to seek for some pockets of optimism," Jun Rong Yeap of IG said in a report. "Guidance for economic conditions from the major U.S. banks point towards an impending slowdown, but it came with some downplaying of risks of a severe U.S. recession with strength in consumer spending and labor market."
Americans' retail spending rose 1% in June compared with the prior month, following a decline in May, the Commerce Department said on Friday. That provided investors with some cheer given that consumer spending represents the bulk of U.S. economic activity.
"While consumers sentiment is very downbeat, it doesn't mean they will stop spending," noted Kathy Bostjancic, chief U.S. economist at Oxford Economics, in a research note.
Inflation concerns
Inflation and the Federal Reserve's fight against it remain key concerns for investors, however. Inflation at the wholesale level climbed 11.3% in June compared with a year earlier. It is the latest painful reminder that inflation is running hot, following a report on Wednesday that showed prices at the consumer level were 9.1% higher last month than a year earlier.
Pervasive inflation has been squeezing businesses and consumers for months and the Federal Reserve has moved aggressively to try to bring prices down by raising interest rates. That has raised concerns that it could go too far and actually cause a recession.
Bank stocks have been hit hard this year as investors have worried about the Federal Reserve putting the U.S. economy into recession to combat inflation. A recession would mean some Americans would lose jobs, and likely start falling behind on their loans. These fears have more than offset the higher revenues that banks have earned from higher interest rates.
Profits at JPMorgan Chase fell by 28% in the second quarter, the bank reported Thursday, as it tries to navigate an economy that's showing strength in many areas but losing steam among rising interest rates that hit consumers and businesses alike.
Investors will get a clearer picture in the coming weeks about how badly inflation is hurting companies. Several more U.S. banks are on deck to report earnings Friday, including Citigroup and Wells Fargo, along with insurer UnitedHealth Group.
In other trading, U.S. benchmark crude oil gained 24 cents to $96.02 a barrel. It lost 52 cents to $95.78 a barrel on Thursday.
Brent crude, the pricing basis for international trading, added 73 cents to $99.83 a barrel.