Optimism Inflation Has Peaked Contributes To Rally On Wall Street

(RTTNews) - Following the significant downturn seen over the course of Thursday's session, stocks showed a strong move back the upside during trading on Friday. With the rally on the day, the major averages reached new three-month closing highs.

The major averages saw further upside going into the close, ending the session at their best levels of the day. The Dow jumped 424.38 points or 1.3 percent to 33,761.05, the Nasdaq surged 267.27 points or 2.1 percent to 13,047.19 and the S&P 500 shot up 72.88 points or 1.7 percent to 4,280.15.

For the week, the S&P 500 skyrocketed by 3.3 percent to record its fourth straight weekly gain, while the Nasdaq and the Dow spiked by 3.1 percent and 2.9 percent, respectively.

Stocks continued to benefit from recent upward momentum, which has lifted the major averages well off their June lows to their highest levels in three months.

Optimism that inflation has peaked also contributed to the continued strength on Wall Street following tamer than expected readings on consumer and producer prices.

Adding to the positive sentiment about inflation, the Labor Department released a report showing U.S. import prices fell by more than expected in the month of July.

The Labor Department said import prices slumped by 1.4 percent in July after rising by an upwardly revised 0.3 percent in June. The decrease reflected the first drop in import prices since December 2021.

Economists had expected import prices to decline by 1.0 percent compared to the 0.2 percent uptick originally reported for the previous month.

The report also showed export prices tumbled by 3.3 percent in July after climbing by 0.7 percent in June. Export prices were expected to decrease by 1.1 percent.

Buying interest was also generated in reaction to a report from the University of Michigan showing consumer sentiment in the U.S. has improved by much more than expected in the month of August.

The report showed the consumer sentiment index jumped to 55.1 in August from 51.5 in July. Economists had expected the index to inch up to 52.5.

With the bigger than expected increase, the consumer sentiment index continued to recover after hitting a record low 50.0 in June.

The University of Michigan also said one-year inflation expectations dipped to 5.0 percent in August from 5.2 percent in July, while five-year inflation expectations crept up 3.0 percent from 2.9 percent.

Surveys of Consumers Director Joanne Hsu noted one-year inflation expectations fell to the lowest level since February but were still well above the 4.6 percent reading from a year ago.

Sector News

Semiconductor stocks extended the recovery from the sell-off seen earlier in the week, driving the Philadelphia Semiconductor Index up by 3 percent.

Substantial strength was also visible among airline stocks, with the NYSE Arca Airline Index soaring by 2.8 percent to a two-month closing high.

Networking stocks also saw considerable strength on the day, resulting in a 2.6 percent jump by the NYSE Arca Networking Index. The index ended the session at its best closing level in well over three months.

Gold, chemical and brokerage stocks also showed strong moves to the upside, moving higher along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Friday. Japan's Nikkei 225 Index surged by 2.6 percent following a holiday on Thursday, while China's Shanghai Composite Index dipped by 0.2 percent.

Meanwhile, the major European markets all moved to the upside on the day. While the German DAX Index advanced by 0.7 percent, the U.K.'s FTSE 100 Index rose by 0.5 percent and the French CAC 40 Index inched up by 0.1 percent.

In the bond market, treasuries regained ground after pulling back sharply over the course of the previous session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 3.9 basis points to 2.849 percent.

Looking Ahead

Reports on retail sales and industrial production are likely to attract attention next week along with a slew of housing data.

Traders are also likely to keep an eye on the minutes of the latest Federal Reserve meeting, looking for additional clues about the outlook for interest rates.

On the earnings front, retail giants Walmart (WMT) and Home Depot (HD), Lowe's (LOW) and Target (TGT) are among the companies due to report their quarterly results next week.