Stocks rally, erasing losses from a turbulent week
On Friday, the Labor Department said the Personal Consumption Expenditure Index, the Fed’s preferred gauge of inflation, rose 5.8% on the year through December, the fastest jump since 1982.
The concern on Wall Street is that interest rates will rise too quickly, hurting corporate profits, hampering consumer demand and discouraging equity investment.
“With skyrocketing inflation and the Fed potentially looking to raise rates four times a year, if not more, markets fear the US economy will struggle to absorb such an aggressive approach from the US central bank,” said Fiona Cincotta. , a market analyst at Forex.com.
That worry was most evident in stocks of tech companies, and even after Friday’s rally, the Nasdaq composite was down 12% in January – on track for its biggest drop since October 2008.
Although the broader S&P 500 has held up better, largely because a rise in oil prices has pushed energy company stocks higher, it remains close to a critical threshold: a 10% drop from its latest record, which on Wall Street is called a correction. A decline of this magnitude is seen as a marker of rapidly changing investor attitudes towards the outlook for the economy.
“A correction means the economy has really lost momentum,” Moya said. After Friday’s rally, the S&P 500 was down 7.6% from its January 3 high. However, the Nasdaq composite is already in correction and is down 14% from its all-time high, which it set in November.
Thus, some analysts have warned against reading too much of Friday’s rebound.
“Markets were up today, driven by corporate earnings and perhaps bargain hunting,” said Greg McBride, chief financial analyst at Bankrate.com. “But a straight is not a streak, and it could be different on Monday.”
Eshe Nelson contributed report.