Stocks Rebound
The major U.S. stock indexes rebounded in a big way from the previous week’s declines, driven largely by a one-day rally on Thursday that was the largest in two and a half years. The NASDAQ posted the top result with a weekly gain of more than 8%; the S&P 500 added about 6% and the Dow rose around 4%.
Although U.S. inflation remains near its highest level since the early 1980s, the latest monthly Consumer Price Index report brought some relief. Inflation rose at an annual 7.7% rate in October—down from 8.2% in September—and 0.4% on a month-to-month basis. Both figures were below the levels that most economists had expected.
Thursday’s release of better-than-expected inflation data ignited a one-day stock market rally, sending the major U.S. indexes to their biggest daily gains since the spring of 2020. The NASDAQ surged 7.4%, the S&P 500 rose 5.5%, and the Dow added 3.7%.
The new inflation numbers fueled speculation that the U.S. Federal Reserve could begin to scale back the size of interest-rate increases starting in December, sending bond prices higher and yields lower. The yield of the 10-year U.S. Treasury bond tumbled from 4.16% at the end of the previous week to 3.82% on Thursday. (On Friday, U.S. bond markets were closed for the Veterans Day holiday.)
An index that measures investors’ expectations of short-term U.S. stock market volatility fell for the fourth week in a row. The CBOE Volatility Index (VIX) fell more than 8% for the latest week; on Friday it was down 33% from a recent high on October 12.
Financial setbacks for a major cryptocurrency trading platform and the company’s subsequent bankruptcy protection filing on Friday triggered a surge of volatility for virtual currencies. The price of Bitcoin, the most widely traded cryptocurrency, fell from around $21,000 on November 4 to less than $17,000 as of Friday afternoon. In November 2021, Bitcoin briefly traded above a record $68,000.
With the current quarterly earnings season nearly complete, analysts have recently been scaling back their expectations for fourth-quarter results that will be released starting in January. On average, analysts expect fourth-quarter earnings for S&P 500 companies to decline by around 1.0%, according to FactSet. At the end of September, analysts had forecast earnings to rise 3.9%.
A U.S. retail sales report scheduled to be released on Wednesday will show whether a recent sales slump extended into October. In September, retail sales posted a flat 0.0% result, down from the prior month’s 0.4% gain. Since retail sales figures aren’t adjusted for inflation, September’s result suggested that consumers cut their spending in response to rising prices.
Source: John Hancock Investment Management
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