US stocks notch best week since March despite global central bank moves

US stocks recorded their biggest weekly gain since March as investors hoped the Federal Reserve’s aggressive campaign of interest rate rises would soon end.

The S&P 500 ended 0.4 per cent lower after oscillating between gains and losses on Friday afternoon, but was up 2.6 per cent over the past five sessions, its biggest weekly gain since late March. The benchmark index had risen for six consecutive sessions by Thursday’s close for its longest winning streak since November 2021.

The Nasdaq Composite dipped 0.7 per cent, held back as heavyweight technology stocks Apple and Microsoft retreated from record highs, down 0.6 per cent and 1.7 per cent, respectively. The index gained 3.2 per cent this week, the biggest advance since mid-March.

Both indices have climbed this year on hopes that the of an end to the Fed’s historic policy to raise rates to tame inflation, pushing them into bull market territory. A resolution in early June to the weeks-long political stand-off over the US debt ceiling has also played into this month’s relief rally.

The Fed this week paused its campaign of interest rate rises for the first time in more than a year, even as it suggested there would be further interest rate increases to come. Weak economic data on Thursday added to investors’ hopes that the central bank might need to make fewer rate increases as the economy cools.

“Market expectations and Federal Reserve expectations for where the economy is heading are moving in different directions”, said James Knightley, chief international economist at ING. “Futures contracts [are] not even fully discounting one hike, let alone the two that the Fed are currently projecting,” he continued.

Investors have priced in a 72 per cent probability that the Fed will go ahead with another quarter-point increase at the next policy meeting in July, according to data compiled by Refinitiv and based on interest rate derivatives prices.

The yield on two-year US Treasury notes rose 0.08 percentage points to 4.73 per cent on Friday. The yield on the benchmark 10-year added 0.04 percentage points to 3.77 per cent. Bond yields rise as prices fall.

Keith Buchanan, senior portfolio manager at Globalt Investments, said the recent rally is especially notable because investors can also find solid returns in Treasuries and other debt markets for the first time in more than a decade. “For US equities to kind of push through and outperform where there are reasonable alternatives speaks to the [positive sentiment].”

The gains for US stocks this week have also come against the backdrop of big moves from other global central banks that painted a picture of still-challenging conditions in other parts of the world.

The European Central Bank on Thursday raised interest rates to their highest level since 2001 and hinted at further policy tightening to combat stubbornly high inflation, while China’s central bank earlier this week cut an important interest rate in response to the softening post-Covid recovery in the world’s second-biggest economy.

On Friday, Europe’s region-wide Stoxx 600 ended the day 0.5 per cent higher, while France’s Cac 40 gained 1.3 per cent and London’s FTSE 100 was up 0.2 per cent.

Oil prices rose, with international benchmark Brent crude gaining 1.2 per cent to $76.61 a barrel, and US marker West Texas Intermediate adding 1.6 per cent to $71.78 a barrel.