Dow Jumps 800 Points, Stocks Snap Three-Week Losing Streak After Inflation Expectations Ease

Topline

The stock market rebounded strongly on Friday, posting its first positive week this month as recession fears subsided somewhat thanks to positive economic data suggesting that inflation may have peaked, while some experts expressed optimism about the health of the economy.

Key Facts

Stocks snapped a three-week losing streak on Friday: The Dow Jones Industrial Average rose 2.7%, over 800 points, while the S&P 500 jumped 3.1% and the tech-heavy Nasdaq Composite 3.3%.

Markets got a boost after the latest consumer sentiment survey from the University of Michigan showed that inflation expectations eased slightly in June, rising 5.3% compared to a year ago—but lower than the 5.4% expected.

Investors also cheered optimistic remarks about the economy from St. Louis Federal Reserve President James Bullard, who said that recession fears are “overblown” and consumer spending remains strong.

Stocks were higher across the board on Friday—with all 11 S&P 500 sectors in the green, led by financials, which got a boost after the Federal Reserve’s latest “stress test” found that the largest U.S. banks remain well-capitalized in the event of a recession.

Cruise stocks were among the biggest gainers: Carnival jumped more than 10% after the company said booking volumes had nearly doubled since last quarter, while shares of Norwegian Cruise Line and Royal Caribbean Cruises both rose by around 15%.

“Our forecast expects the Fed to be largely successful in engineering a soft landing, at least through the end of next year,” JPMorgan strategist Marko Kolanovic said in a recent note, predicting that the S&P 500 will rebound significantly by the end of 2022.

Crucial Quote:

“Hopes that inflation is peaking and that the economy is still on solid footing has some investors confidently buying up heavily discounted stocks,” says Edward Moya, senior market analyst at Oanda. Though this “could still be a bear market rally, that might change,” he says, adding, “it seems Wall Street is starting to believe that even if the economy has a recession, it will be a short one.”

Key Background:

Stocks completed a strong rebound this week, rallying off the lows of the bear market. The S&P 500 was up 5% since last week, while the Nasdaq gained 6% and the Dow roughly 4%. Despite the recent comeback, markets have been hit hard this year as rising rates and surging inflation weigh on investor sentiment. The Federal Reserve raised interest rates by 75 basis points last week, with Fed Chair Jerome Powell reiterating on Wednesday that the central bank is “strongly committed” to hiking rates until inflation moderates.

What To Watch For:

“Powerful disinflationary forces are gathering steam as commodity prices sink from their highs and U.S. retailers prepare for aggressive discounting to clear out excess inventory,” describes Vital Knowledge founder Adam Crisafulli. “This may not show up immediately in CPI/PCE readings, but a major inflation inflection point is imminent,” he predicts.