Wall Street stocks had their best week in three months as strong corporate earnings tempered nerves about inflation.
The blue-chip S&P 500 rose 0.8 per cent on Friday for a gain of 2 per cent over the past five days, its best weekly performance since July. Industrial and financial groups helped drive the gains. The technology-heavy Nasdaq Composite ended the session 0.5 per cent higher.
The gains continued from Thursday’s trading session, which marked Wall Street’s best daily performance for eight months as upbeat earnings tempered fears of inflation.
Stock and bond markets have for weeks been dogged by worries about surging energy prices, jammed-up supply chains and companies failing to pass on higher costs to consumers. Better than expected quarterly earnings reports from Wall Street banks and iPhone chipmaker Taiwan Semiconductor Manufacturing Company, however, have lifted the mood.
Goldman Sachs capped off a stellar quarter for investment banking revenue, beating analysts’ expectations and pulling in $3.7bn in M&A advisory fees — an 88 per cent increase from the previous year.
“Expectations for this earnings season had really been whittled down,” said David Stubbs, global head of market strategy at JPMorgan’s private bank. “The market is now giving this earnings season the benefit of the doubt.”
But the record investment banking fees seen across Wall Street have boosted results amid lacklustre performances in other areas such as trading revenue, which surged in the early phases of the pandemic due to extreme market volatility.
In Europe, the regional Stoxx Europe 600 index closed up 0.7 per cent, delivering a weekly rise of more than 2 per cent. London’s FTSE 100 added 0.4 per cent.
Government bonds were under pressure on Friday after data showed US retail sales unexpectedly rose last month, accelerating bets that the Federal Reserve would withdraw some of its crisis-era support for the world’s largest economy.
The yield on the benchmark 10-year US Treasury note, which moves inversely to its price, added 0.06 percentage points to 1.57 per cent.
The Fed, according to the minutes from its latest meeting, is poised to phase out its pandemic-era monetary stimulus, which has involved buying $120bn of Treasury and mortgage-backed bonds per month to lower borrowing costs for companies and households.
Futures markets are also predicting the Fed will raise US interest rates by 0.25 percentage points, from their record low level, by September next year.
“There is a definite possibility that markets are underpricing monetary tightening,” said Bastien Drut, chief thematic macro strategist at CPR Asset Management, adding that the burst of positive sentiment around earnings could prove to be short lived.
Headline consumer price inflation in the US is running at a 13-year high. Meanwhile, higher oil and coal prices as Europe and Asia grapple with a natural gas shortage have intensified discussion that central banks will make policy errors by raising interest rates during an economic slowdown.
“Energy price inflation will impair growth in Europe and Asia and that will in turn impact the rest of the world,” Drut said.
Brent crude, the oil benchmark, rose on Friday to a three-year high of $84.72 a barrel before settling at $84.46.
Sterling rose 0.5 per cent against the dollar to purchase $1.374. The dollar index, which measures the US currency against six others including the euro and sterling, was roughly flat on the day.
The UK currency also gained against the Japanese yen, having earlier in the day purchased ¥157.4 — its highest level since early 2016. It was last at ¥157.0. The Bank of Japan, unlike the Bank of England and the Fed, has not yet indicated that it is ready to withdraw pandemic-era monetary stimulus.