Strong US economy pushes equities towards best week of 2024

A flurry of data showing the American economy’s resilience has put US stocks on course for their strongest week of the year.

The latest readings, from inflation to jobless claims and retail sales, have reassured investors and supported hopes that the world’s biggest economy is heading for a “Goldilocks” scenario of contained price pressures accompanied by resilient growth. The S&P 500 has rallied 3.7% this week, while the Nasdaq 100 is up more than 5%, the biggest gains for both indexes since November.

“There is little in the data flow now to really derail sentiment in the immediate near-term,” said Chris Weston, head of research at Pepperstone Group Ltd.

Stock markets around the world have largely erased last week’s losses, when traders were worried the Federal Reserve won’t cut interest rates fast enough to achieve a soft landing for the US economy. In Europe Friday, the Stoxx 600 Index added 0.5% as it headed for its best week since May. US equity futures ticked higher. 

Friday’s gains were strongest in Asia, where stocks also headed for their best weekly performance in over a year, led by Japan as a weak yen boosts exporters’ earnings prospects. The currency is set for its sharpest weekly drop since June after sliding 1.3% against the dollar Thursday. It was trading around the 149 level, easing fears of a massive carry trade unwind. 

Treasuries were steady after Thursday’s dip, as evidence of US economic strength prompted traders to dial back bets for a jumbo September rate reduction. A 25 basis-point cut by the Fed remains fully priced, with more than 90 basis points of easing expected by the end of 2024.

Among individual stock moves Friday, Applied Materials Inc. fell in US premarket trading, after the semiconductor capital-equipment company’s forecast disappointed bullish investors looking for a bigger payoff from artificial intelligence spending. Bayer AG jumped 10% following a significant win for the German company in long-running cancer litigation over its Roundup weedkiller. 

The latest gains on Wall Street saw the S&P 500 notch its strongest six-day winning run since November 2022. Strategists at Bank of America Corp. said US stocks just recorded a seventh straight week of inflows, underscoring the sustained appetite for equities among investors. BofA said about $5.5 billion went into US equity funds in the week through Aug. 14, in a note citing EPFR Global data.

US officials have been trying to use higher rates to ease inflation without causing the economy to contract. Fed Bank of St. Louis President Alberto Musalem said the time is nearing when it will be appropriate to cut rates. His Atlanta counterpart Raphael Bostic told the Financial Times he’s “open” to a reduction in September.

“A soft landing is no longer a hope. It’s becoming a reality,” said David Russell at TradeStation. “These numbers also suggest that recent market volatility wasn’t really a growth scare. It was just normal summer seasonality amplified by moves in the currency market.”

In commodities, gold was on track for a weekly gain. Oil dropped as the market weighed strong US economic data and a possible attack by Iran or its proxies on Israel against a lackluster Chinese demand outlook.

Key events this week:

• US housing starts, University of Michigan consumer sentiment, Friday
• Fed’s Austan Goolsbee speaks, Friday
• Canada housing starts, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 rose 0.5% as of 10:09 a.m. London time
• S&P 500 futures rose 0.1%
• Nasdaq 100 futures rose 0.2%
• Futures on the Dow Jones Industrial Average rose 0.1%
• The MSCI Asia Pacific Index rose 2.3%
• The MSCI Emerging Markets Index rose 1.6%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%
• The euro was little changed at $1.0980
• The Japanese yen rose 0.4% to 148.70 per dollar
• The offshore yuan rose 0.1% to 7.1721 per dollar
• The British pound rose 0.3% to $1.2889

Cryptocurrencies

• Bitcoin rose 3% to $58,362.42
• Ether rose 2.6% to $2,615.88

Bonds

• The yield on 10-year Treasuries declined two basis points to 3.90%
• Germany’s 10-year yield declined two basis points to 2.24%
• Britain’s 10-year yield declined two basis points to 3.91%

Commodities

• Brent crude fell 0.9% to $80.35 a barrel
• Spot gold rose 0.3% to $2,463.92 an ounce

This story was produced with the assistance of Bloomberg Automation.

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