Wall St eyes weekly gains as slowing inflation raises hopes

By Herbert Lash and Bansari Mayur Kamdar

NEW YORK (Reuters) - Wall Street rallied on Friday, setting the S&P 500 and the Nasdaq up for a fourth straight week of gains, as signs that inflation may have peaked in July increased investor confidence that a bull market is under way.

The S&P 500 is up 16.8% from a mid-June low, with the latest boost coming from data this week showing a slower-than-expected rise in the consumer price index and a surprise drop in producer prices last month.

The S&P 500 crossed a closely watched technical level of 4,231 points, indicating the benchmark index has recouped half its losses since tumbling from its all-time peak in January. A 50% retracement for some signals a bull market.

U.S. Inflation: Past its peak?, https://graphics.reuters.com/USA-ECONOMY/INFLATION/zdvxozxmlpx/chart.png

As the S&P 500 and Nasdaq headed for a fourth straight week of gains, analysts noted the Federal Reserve still had its work cut out to tame inflation by raising interest rates without prompting a recession.

"Markets certainly got great news this week on inflation," said Dec Mullarkey, managing director of investment strategy and asset allocation at SLC Management in Boston.

"A victory lap in some respects was in order, but it's not 'mission accomplished' by any means. It's still a very slow grind ahead."

The Dow Jones Industrial Average rose 300.32 points, or 0.9%, to 33,636.99, the S&P 500 gained 53.72 points, or 1.28%, to 4,260.99 and the Nasdaq Composite added 206.79 points, or 1.62%, to 12,986.70.

While the Fed is prepared to further tighten monetary policy until inflation has fully abated, traders see just a 55.5% chance of policymakers raising rates by 50 basis points when they meet in September, instead of 75 basis points. [FEDWATCH]

The Fed has raised its policy rate by 225 basis points since March as it battles to cool demand without sparking a sharp rise in layoffs.

All 11 of the major S&P 500 sectors advanced, with information technology stocks leading the gains.

Technology stocks such as Apple Inc (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOGL) Inc rose more than 1% each as investors snapped up growth shares and Treasury yields dipped after a volatile week.

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Growth stocks have underpeformed theunderperformedterparts so far this year on worries that rising Treasury yields due to aggressive rate hikes will pressure their valuation. But growth outperformed value on Friday.

Investors bought $7.1 billion in equities in the week to Wednesday, according to a Bank of America (NYSE:BAC) note, with U.S. growth stocks recording their largest weekly inflow since December last year.

"The major indices are trading near highs going back to May and June and those highs are now serving as near-term resistance," said Adam Sarhan, chief executive of 50 Park Investments.

Meanwhile, banks rose 0.8% and were on track to extend their rally for a sixth straight week. JPMorgan Chase (NYSE:JPM) and Morgan Stanley (NYSE:MS) rose about 1.0% each.

Data showed U.S. consumer sentiment ticked further up in August from a record low this summer and American households' near-term outlook for inflation eased again on easing gasoline prices.

After a rough start to the year, better-than-expected second-quarter earnings from corporate America have supported the upbeat sentiment for U.S. equities.

Of the 456 S&P 500 companies that have reported earnings so far, 77.6% have topped profit expectations, as per Refinitiv data.

Rivian Automotive Inc rose 0.3% as the electric-vehicle maker reported better-than-expected second-quarter revenue.

GlobalFoundries Inc jumped 11.9% on being added to BofA Global Research's "U.S. 1 list."

Advancing issues outnumbered declining ones on the NYSE by a 3.51-to-1 ratio; on Nasdaq, a 2.56-to-1 ratio favored advancers.

The S&P 500 posted five new 52-week highs and 29 new lows; the Nasdaq Composite recorded 64 new highs and 37 new lows.