Stocks are posting their best stretch of the year as inflation eases

The stock market posted its best gains of the year as investors took comfort from early signs that inflation is easing and the economy is picking up.

The S&P 500 rose Friday’s 1.7 percent increase marked its fourth consecutive positive week, marking a week-over-week increase of 3.3 percent, a feat it hasn’t achieved since October. Although down 10 percent for the year, the index is now 16 percent higher than its low point in June.

The rally was a stark contrast to the first half of the year when Wall Street suffered Worst start in half a centuryThe war in Ukraine, energy costs, rising interest rates and rapid inflation fueled investor fears about the economy’s health.

Federal Reserve officials have suggested that the campaign to raise interest rates to control inflation is not over yet. But some investors are looking at the latest economic data based on the central bank Move less aggressivelyAllaying concerns that high borrowing costs could push the economy into a sharp downturn.

“The peak of hysteria about inflation and interest rates is over, and we’re seeing something less dramatic,” said Michael Purves, founder and chief executive of Dalbaken Capital.

The latest consumer price index report released on Wednesday provided a momentary reprieve for Wall Street as inflation eased. It has come down to 8.5 percent July year-to-date, down from a 9.1 percent pace in the previous month. The data provided an early indication that the central bank’s efforts to control inflation may be having an effect.

And what’s more, data shows that the July economy Recovered all lost jobs In epidemics, The higher rates of rising costs for companies, along with weeks of better-than-expected earnings reports from companies, have raised some concerns among investors that corporate America could be cut even deeper.

Also known as the CBOE Vix Volatility Index Wall Street’s “Fear Gauge” Because it reflects investors’ sense of uncertainty over stock market moves, it fell 20 points below its long-term average this week. The Wix has been above that mark since April, so a lower reading could be a sign that investor jitters have eased.

“We’ve seen the cascade of inflationary pressures start to unwind,” said Patrick Palfrey, senior U.S. equity strategist at Credit Suisse. He added that this “forces” investors to re-evaluate their trading positions.

Bankers said retail investors helped drive the rally. The sharp rise in so-called meme stocks and the rise of some cryptocurrencies point to a huge contribution from individual investors.

“The cornerstone of this is the labor market. “If you don’t have a job, you’re not buying meme stocks.”

Experts also said that equity markets are prime movers. Investors have reduced their bets on the market due to uncertainty. Trading volume is also low as many big investors are on vacation until August. As a result, even small amounts of buying interest helped propel the market, creating momentum as other investors chased returns.

More than $11 billion flowed into funds buying U.S. stocks in the first week on Wednesday, the most in eight weeks, according to EPFR Global.

But some bankers warned that as quickly as markets recovered, they could fall again. Short-term gains during sustained losses, known as bear market rallies, are not uncommon.

After peaking in October 2007, the S&P 500 fell more than 50 percent in November 2008 following the collapse of Lehman Brothers. The index rose nearly 24 percent in the following weeks. But the sale didn’t end there. The S&P 500 gave up all those gains in early 2009 and bottomed out in March of that year.

Mr. Masserio said the central bank’s task of reducing inflation to its target of 2 percent is like turning an oil tanker around: slow and fraught with risk.

“Fundamentally, what’s built into the system is more tricky than what we can fix in six months of a change in monetary policy,” he said, adding that the stock market’s woes were far from over.

Stocks are higher as the inflation outlook has improved and the economic backdrop is supportive. Although the tor is not as good as expectations, there are doubts about how long the rally will last.

“I’m excited about the market, but I’m still a worried and nervous bull,” Mr. Purves said. “We’re not out of the woods yet.”

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