The American economy has been showing signs of resilience, with a flurry of data indicating strong growth and contained price pressures. This positive news has propelled US stocks to their strongest week of the year, with the S&P 500 rallying 3.7% and the Nasdaq 100 up more than 5%, marking the biggest gains for both indexes since November.
Investors have been reassured by the latest readings on inflation, jobless claims, and retail sales, which have supported hopes for a “Goldilocks” scenario in the economy. This term refers to a situation where there are moderate price pressures alongside robust growth, creating an ideal environment for investors.
Chris Weston, head of research at Pepperstone Group Ltd., noted that there is little in the current data flow to derail sentiment in the immediate near-term. This positive outlook has helped stock markets around the world recover from last week’s losses, when concerns about the pace of interest rate cuts by the Federal Reserve weighed on investor sentiment.
In Europe, the Stoxx 600 Index added 0.5% on Friday, heading for its best week since May. US equity futures also ticked higher, reflecting the overall positive sentiment in global markets. Asian stocks saw strong gains, with Japan leading the way as a weak yen boosted exporters’ earnings prospects.
Treasuries remained steady after a slight dip, as evidence of US economic strength tempered expectations for a significant rate reduction in September. While a 25 basis-point cut by the Fed is still fully priced in, traders have scaled back bets for a larger reduction amid signs of a resilient economy.
Individual stock movements on Friday included Applied Materials Inc. falling in premarket trading after disappointing forecasts, and Bayer AG jumping 10% following a legal victory in cancer litigation over its Roundup weedkiller. The overall gains on Wall Street have seen the S&P 500 notch its strongest six-day winning streak since November 2022.
Bank of America Corp. strategists highlighted that US stocks have recorded a seventh straight week of inflows, indicating sustained investor appetite for equities. Approximately $5.5 billion flowed into US equity funds in the week through Aug. 14, according to EPFR Global data cited by BofA.
US officials have been navigating higher rates to combat inflation without stalling economic growth. Fed Bank of St. Louis President Alberto Musalem suggested that it may soon be appropriate to cut rates, while his Atlanta counterpart Raphael Bostic expressed openness to a reduction in September.
Overall, the positive economic data and market performance suggest that a soft landing for the economy is becoming a reality. David Russell at TradeStation noted that recent market volatility was likely driven by normal summer seasonality, rather than underlying growth concerns.
In commodities, gold was on track for a weekly gain, while oil prices dropped amid mixed signals from strong US economic data and geopolitical tensions. Key events to watch this week include US housing starts, University of Michigan consumer sentiment, and speeches by Fed officials.
In conclusion, the recent flurry of data indicating a resilient American economy has boosted US stocks to their strongest week of the year. Investors are optimistic about the prospects of contained price pressures and robust growth, driving positive sentiment in global markets.
