The S&P 500 raced higher Friday, notching its best week of the year and snapping a punishing losing streak that had almost ended its bull market.
A slew of earnings results and economic data has boosted optimism among investors in recent sessions, helping pull major indexes away from their lows of the year. A broad-based rally, with all 11 of the S&P 500’s groups rising, helped the index break a seven-week losing streak. All three major indexes jumped at least 6% this week, which hasn’t happened since November 2020.
On Friday, new data showed that U.S. households boosted spending for a fourth straight month, though they reached deeply into savings to do so. Meanwhile, a closely watched U.S. inflation reading eased in April. The data, alongside some strong earnings, has pushed shares of retailers sharply higher.
Ulta Beauty and Ross Stores were among the week’s biggest winners in the S&P 500, gaining at least 20% apiece.
Meanwhile, U.S. consumers appear reluctant to let high gas prices and travel costs keep them from their Memorial Day weekend plans and are expected to keep powering the economy.
For months, worries about high inflation and the path of Federal Reserve rate increases have weighed on the market. Investors have grown concerned that interest rate hikes could tip the economy into a downturn. Many of the extended rate-hiking cycles in recent decades have eventually led to contractions, according to Deutsche Bank.
Fears of that worst-case scenario appeared to abate this week. Stocks kept rising after the Fed’s latest meeting minutes showed that central bank officials thought they would need to raise interest rates by a half-percentage point at each of the next two meetings. Major indexes built on those gains later in the week and then surged Friday, ending the week near their session highs.
The S&P 500 gained 100.40 points, or 2.5%, to close Friday at 4158.24. The Dow Jones Industrial Average added 575.77 points, or 1.8%, to 33212.96. The tech-heavy Nasdaq added 390.48 points, or 3.3%, to 12131.13.
Some investors said stocks had fallen too far, too fast. A deep selloff has made valuations more attractive, encouraging some investors to buy the dip.
“People are loath to abandon a tactic, or strategy, that’s worked so well for them,” said
Steve Sosnick,
chief strategist at Interactive Brokers. “We’ve seen our clients resolutely buying.”
Nearly $21 billion flowed into global equity funds in the week through Wednesday, a BofA Global Research analysis of EPFR data show, the largest inflow in 10 weeks.
This week’s rally has offered a reprieve from what has felt like a constant battering of portfolios. Last week, the Dow industrials fell for an eighth week in a row, its longest stretch since 1932, while the Nasdaq Composite, like the S&P 500, notched a seventh straight week of losses.
Still, few investors and strategists are willing to call a bottom to a selloff that has sent the S&P 500 falling around 13% for the year. Some traders said the recent gains seemed like a short-term rally during a broader decline.
“I think you’re going to see a lot of ‘buy the dip’ and ‘sell the rips,’” said
Stephen Solaka,
co-founder of Belmont Capital Management.
The turmoil throughout the year and vigorous rally in recent days has left some investors wondering: Is the worst over?
Few of the fundamental factors that have sent stocks falling this year have changed. The Federal Reserve is on course to continue lifting interest rates. Meanwhile, Covid-19 lockdowns in China and the war in Ukraine have exacerbated supply-chain snarls.
“I can’t count the times that people have asked me: ‘Have I seen capitulation?’” Mr. Sosnick said.
Some of the riskiest bets flourished this week alongside the major indexes. An exchange-traded fund tracking high-yield bonds, the
iShares iBoxx $ High Yield Corporate Bond ETF,
has risen for five consecutive sessions, its longest winning streak since June 2021, according to Dow Jones Market Data. Meme stocks such as
and
have also rocketed higher, adding 43% and 20%, respectively, this week.
Julien Stouff,
founder of hedge-fund firm Stouff Capital in Geneva, Switzerland, said that he has put on a position that would profit if the rally continued in the near-term, though he doesn’t think the selloff is over yet. He said that market volatility has been edging lower lately and many investors appear to already have dumped their stock-market bets.
“Right now we are bullish” in the short-term, Mr. Stouff said.
For several weeks, investors have also been parsing earnings results, many of which have driven giant swings across the market. Shares of
jumped Friday 13% after reporting a rise in profit and a decline in some operating expenses.
Though shares of retailers have impressed investors this week, other companies have conveyed a gloomier outlook.
executives issued a profit warning on Monday, saying that it planned to slow hiring and spending. The company’s shares have plunged 33% this week.
Shares of human resources cloud-software company
dropped 5.6% Friday after it reported first-quarter adjusted earnings that came up short of expectations.
And there has been a divergence in Americans’ behavior and how they feel about their finances, highlighting the uncertainty regarding the economy right now. The University of Michigan’s consumer sentiment index fell to the lowest level since August 2011. High inflation has been chipping away at Americans’ wallets and raising concerns about a recession, leading to low levels of confidence.
Concerns about economic growth have lingered, driving government bond yields lower, off the highs hit earlier in May. The yield on the benchmark 10-year U.S. Treasury note dropped to 2.748% Friday and has fallen for three consecutive weeks. Yields and prices move in opposite directions.
Oil prices rose, with Brent crude, the international benchmark, gaining 6.1% to $119.43 a barrel this week, the best stretch in more than a month.
Overseas, the pan-continental Stoxx Europe 600 added 1.4%. In Asia, Hong Kong’s Hang Seng rose 2.9%. Japan’s Nikkei 225 added 0.7%. The Shanghai Composite gained 0.2%.
Write to Gunjan Banerji at gunjan.banerji@wsj.com and Caitlin McCabe at caitlin.mccabe@wsj.com
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