Investors took relief from a painful sell-off as the Dow Jones Industrial Average and S&P 500 rose to close their best week since November 2020.
The Dow rose 575.77 points, or nearly 1.8%, to 33,212.96. The S&P 500 rose about 2.5% to 4,158.24. The tech-heavy Nasdaq Composite outperformed, driven by strong earnings from software companies and a drop in the 10-year U.S. Treasury yield. It closed the day up 3.3 percent at 12,131.13.
All three major stock indexes ended the week higher. The Dow gained 6.2% for the week, snapping its longest eight-week losing streak since 1923. The S&P 500 gained 6.5% for the week and the Nasdaq gained 6.8%. Both indexes snapped a seven-week losing streak. Most of the week’s gains came on Thursday and Friday, with all three averages rising as strong retail earnings and a slowing inflation report lifted sentiment.
“We’re taking a little break here and adjusting the market a little bit to make that happen,” Tom Martin, senior portfolio manager at Globalt Investments, told CNBC. “We’ve come a long way, and if we can stabilize here, Then the decline we’re seeing is probably what we need, or close to that.”
A report showing slowing inflation helped lift stocks on Friday.Core Personal Consumption Expenditure Price Index Up 4.9% in April, down from 5.2% the previous month. The Fed pays close attention to the special report as it sets policy.
Investors also continued to analyze retail earnings on Friday.Ulta Beauty shares rose nearly 12.5% after the company reported better-than-expected quarterly results, while Gap shares rose 4.3%, despite Cut profit guidance.
“Consumers seem to have a ‘barbell’ style of spending: low-end essentials and high-end experiences/luxury items are doing well, while grocery spending is delayed, i.e. one more year from the shabby state of patio furniture is ok ,” Wells Fargo’s Christopher Harvey said Friday.
“This week, various retailers have begun to balance the macro narrative, and now the demise of the consumer appears to be greatly exaggerated,” he added.
Technology stocks were among the top gainers on Wednesday. Software company Autodesk rose 10.3% after reporting strong earnings for its most recent quarter. Profits at Dell Technologies rose 12.8%, while chip maker Marvell rose 6.7%. Zscaler and Datadog were also higher on Friday, gaining about 12.6% and 9.4%, respectively.
The moves come as investors assess the sustainability of this week’s rally and whether it’s a relief rally or if it marks the bottom of a long sell-off this year.
Still, the moving averages remain well below their highs, the Nasdaq Composite remains firmly in bear market territory, and the S&P 500 briefly fell more than 20% last week.
The Nasdaq is now down about 25.2% from its record high, while the S&P 500 and Dow are down 13.7% and 10.1%, respectively.
Jeff Kilburg, chief investment officer at Sanctuary Wealth, said he sees the U.S. Treasury market as a “beacon” for the stock market. The 10-year Treasury yield has fallen below 2.75% from a peak of over 3% this year.
“I’m not calling it a bear market rally, just a repositioning. A lot of people are too pessimistic,” Kielberg said. “I come back to the interest rate issue. When you see Treasuries rising above 3%, it’s not sustainable. When it’s below 2.75%, the stock market recovers, which is an obvious short-term return to the stock market.”