Global stocks posted their strongest week since November, as volatility subsided and investors brushed off recent concerns about a potential US recession.
Equity markets worldwide made a strong comeback from the earlier month’s downturn, supported by encouraging US data that indicated resilient consumer spending and declining inflation.
Wall Street’s S&P 500 index ended a four-week losing streak, closing the week up 3.9%, including a 0.2% gain on Friday, marking its best performance since November.
“A lot of the fear and trepidation has dissipated,” said Joe Mazzola, head trading and derivatives strategist at Charles Schwab. “The data shows the US economy is slowing, but that’s expected after two years of rate hikes. It’s just when the slowdown becomes evident that nerves start to fray.”
These gains left the blue-chip benchmark just 2% below its all-time high, achieved a month ago.
Japanese stocks, which were hit hardest by the global sell-off at the beginning of August, surged 3% on Friday, resulting in a weekly gain of 7.9%. Meanwhile, the Stoxx Europe 600 index added 0.3%, finishing the week 2.4% higher.
The MSCI World index, which tracks global developed market stocks, also recorded its best week since early November.
Investors are now turning their attention to the Federal Reserve’s upcoming Jackson Hole symposium for further insights into the central bank’s outlook on interest rates.
“Our expectations are that [Fed Chair Jay] Powell will more clearly indicate a rate cut in September and provide more context on the Fed’s anticipated pace of future rate reductions,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets.
This week’s market rebound was supported by data suggesting the US economy is faring better than expected. Inflation data released on Wednesday revealed that the annual increase in the consumer price index had dropped below 3 percent for the first time since March 2021. On Thursday, strong US retail sales figures and lower-than-expected new jobless claims further boosted investor confidence.
Friday also saw a stronger-than-expected gauge of consumer confidence, surpassing the eight-month low recorded in July. Meanwhile, the Vix index, commonly known as Wall Street’s “fear gauge,” fell below 15, down from a four-year high of 65 reached earlier in August during the market sell-off.
“The market movements in recent weeks show how quickly narratives can shift based on single data points, and we could see more volatility ahead,” said Wei Li, global chief investment strategist at BlackRock.
On Friday, Fed funds futures indicated that investors had fully priced in three quarter-point interest rate cuts by the end of the year, with a strong possibility of an additional cut. Less than two weeks ago, recession fears had led investors to bet on a sharp half-point cut as early as next month.
US two-year bond yields, which closely reflect rate expectations, closed Friday at 4.05 percent, up 0.39 percentage points from their recent low on August 5. Yields move inversely to prices.