Major indexes closed higher on Friday afternoon after a mixed week of losses and what appears to be tougher language from Federal Reserve officials on interest rate tightening.
The Dow Jones Industrial Average rose 0.59% or 199.37 points to hit 33,745.69, while the S&P 500 added 0.48% to reach 3,965.34. The Nasdaq Composite was only 0.01% from the flatline, finishing at 11,146.06.
However, the week was tough. All those averages reported losses after an important rise following a better-than-expected inflation report.
Despite the slight recovery on Friday morning, the Dow Jones Industrial Average finished 0.01% lower while the S&P 500 lost 0.69% for the week. The biggest loss was registered by the Nasdaq, which fell 1.57%.
On the New York Stock Exchange and Nasqad, advancing issues outnumbered decliners by 1.19 to 1.
The Nasdaq also reported 45 new highs with 90 lows, while the S&P 500 posted at least seven new 52-week highs and two new lows.
However, all three indices are positive for the month.
Also, the market was divided during most of the day. The S&P 500 traded mostly flat as investors became more cautious about their expectations after last week’s rallies.
On Friday, defensive actions advanced. Public services rose 1.5%, while health soared 0.9%
The communication services and consumer indices plummeted by 0.6% and 0.7%, respectively. Both house high-growth stocks.
Concerns about China’s weakening demand for oil sent the energy segment down around 2.0%.
On the other hand, some were more positive. Gap Inc gained 3% after beating its quarterly sales and profit estimates, while retailer Ross Stores Inc soared 10.5%.
However, based on the latest reports, the S&P 500 and Nasdaq have fallen 17% and 29%, respectively, year-to-date. Their decline has been driven mostly by reports that interest rate hikes are causing a recession in the US.
According to Homrich Berg’s chief investment officer, Stephanie Lang, this week shows that the market is coming back to reality.
After a rally fueled by a better-than-expected Consumer Price Index for October, the market is “digesting” the current data, bringing things back to reality, she stated, adding that the recovery after last month’s CPI is unjustified.
Ms. Lang also spoke of the impact Fed officials’ comments have on the market, saying that investors had expected less stringent interest rate hikes but that’s unlikely to happen.
Homrich Berg’s chief investment officer says that hearing Fed officials reiterate their stance has also led the market to readjust again.
On Friday, Boston Federal Reserve Bank President Susan Collins said she was confident politicians could rein in inflation without hurting jobs.
However, Ms. Collins, who is part of the committee that set interest rates this year, suggested that the Fed could continue with aggressive interest rate hikes.
With little evidence of a decrease in price pressures, the Fed may be forced to raise the interest rate by 75 basis points to control inflation, she added.
Only a day earlier, St. Louis Federal Reserve Chairman James Bullard said the policy rate has not yet reached a zone where it is considered “sufficiently restrictive.”
According to Mr. Bullard, the appropriate zone for the federal funds rate should be between 5% and 7%, above what is currently quoted in the market. He also suggested that the Fed could raise the rate further.
Analysts have addressed Fed officials’ comments.
Vital Knowledge founder Adam Crisafulli advised investors to put more emphasis on the real data instead of focusing too much on the Fed rhetoric.
Mr. Crisafullu insisted that the Fed focuses on where inflation is while the actual data really shows where it is going.
With strong retail sales numbers and labor market data also reported earlier this week, analysts believe the Fed has much more room to tighten the monetary policy.
GuideStone Capital Management director of public investment Brandon Pizzurro referred to Ms. Collins’ comments, saying the Fed had made “a bold move.”
Mr. Pizzurro stated that the Fed could go out and make a federal speech that will send the markets back. Then, the next day, officials will start sniffing around to find the next best thing to do, hoping for more profit, he added.
In a related development, CME Group’s FedWatch tool revealed that traders’ bets on a 75bp rise next month had risen from 19.4% last week to 24.2% this week.