The three major stock indices on Wall Street - comprising the Dow Jones Industrial Average Index, the S&P 500 and the Nasdaq Composite Index - closed Friday’s trade up 2.5% on the average.
For the week, the indices averaged a return of 6.6%.
The rally in stocks came as the main US inflation gauge tracked by the Federal Reserve grew at a slower pace in April for the first time in seven months, suggesting the central bank could be gaining momentum in its fight to stop the worst price outbreak in four decades.
The Personal Consumption Expenditure Index, known simply as the PCE, grew 6.3% year-on-year in April, the Bureau of Economic Analysis, a unit of the US Commerce Department, said in a news release. Prior to that, the inflation tracker was unrelenting in its growth each month, expanding from an annualized pace of 3.6% in September to 6.6% in March.
The surge in inflation prior to April had the Federal Reserve promising to raise rates non-stop and even slow economic growth, if necessary, to bring price growth back to the US norm of 2% or less a year. Wall Street had fallen without a stop in seven prior weeks on worries that the central bank might tip the economy into a recession with the most aggressive US interest rate hikes in a generation.
“Bargain hunters are tempted back in to cap off the first winning week in eight in the US,” Craig Erlam, analyst at online trading platform OANDA, said, noting the first weekly rebound since the week that ended on March 25.
Despite the turnaround, Wall Street’s three main indices remained down sharply on the year.
The Dow, comprising stocks of 30 large US corporations, showed an annual loss of 9%.
The S&P 500, representing the top 500 US stocks, was down 13% on the year. As of last week, the index was hovering near bear-market territory after sliding almost 20% on the year. Any asset down 20% from its most recent high or from any particular period like a quarter or year-end is defined as having entered a bear market.
The Nasdaq index was down 22% on the year as of Friday's close. Last week, it showed a year-to-date loss of almost 30%.
”It's been a rough ride and despite this week's performance, there could still be more pain to come,” Erlam said, referring to potential market sell offs on worries about the economy.
The US economy expanded by 5.7% in 2021, growing at its fastest pace in 40 years. But since this year began, the economy has been on a weaker trajectory, posting a negative growth of 1.4% in the first quarter. If it does not return to positive territory in the second quarter, the United States will be in recession going by the definition that it takes just two negative quarters in a row to make up a recession.