The S&P 500 on Friday closed higher, in a light trading day ahead of a long weekend, as investors assessed inflation data against rate hike and recession fears.
A US Department of Commerce report showed that US consumer spending barely rose last month, while inflation cooled further, but not enough to discourage the US Federal Reserve from driving interest rates to higher levels next year.
The personal consumption expenditures price index, the Fed’s preferred inflation gauge, rose 0.1 percent last month after climbing 0.4 percent in October.
Photo: AP
A benchmark survey showed that US consumers expect price pressures to moderate notably in the next year, with the one-year inflation outlook dropping to the lowest in 18 months this month.
Wall Street indices on Thursday sold off sharply after revised data indicated a resilient US economy, fueling worries that the Fed could keep hiking rates for longer and end up pushing the economy into a recession.
However, Friday’s data and that it came roughly in line with expectations, eased some of those concerns for now, said Shawn Cruz, head trading strategist at TD Ameritrade in Chicago, Illinois.
“This is a clear indication that this is a bad news is good news kind of market. The market wants the Fed to feel what they’re doing has been enough,” Cruz said.
“It is on edge over what the path for Fed policy is going to be for next year as that’s going to drive the economy and corporate earnings,” he said.
Investors have been jittery since last week as the Fed indicated that it remains stubbornly committed to achieving the 2 percent inflation goal and projected rate hikes to higher than 5 percent next year, a level not seen since 2007.
Joe Quinlan, head of CIO market strategy at Merrill and Bank of America Private Bank also called the Fed hawkishness “the big cloud on the horizon.”
“Today is more of a muted response to good data, but still it’s not all clear, mission accomplished,” he said, adding that analyst earnings estimates for next year are likely too high.
The Dow Jones Industrial Average rose 176.44 points, or 0.53 percent, to 33,203.93, while the S&P 500 gained 22.43 points, or 0.59 percent, to 3,844.82. The NASDAQ Composite added 21.74 points, or 0.21 percent, to 10,497.86.
The S&P and NASDAQ lost ground for the third week in a row, with the benchmark index falling 0.2 percent compared with a weekly decline of 1.94 percent for NASDAQ. The Dow gained 0.86 percent for its first weekly increase out of three.
Cruz said that thin trading volume might have created more exaggerated moves on Thursday and Friday, with volume dropping sharply on Friday as participants likely took time off ahead of the long weekend.
US markets are to be closed tomorrow, the day after the Christmas holiday.
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