Stay informed with free updates
Simply sign up to the US equities myFT Digest — delivered directly to your inbox.
US stocks had an impressive week, recording their best performance since Donald Trump’s election victory. The boost came from strong bank earnings and a decrease in underlying inflation data, increasing the likelihood of further interest rate cuts this year.
The S&P 500 closed 1% higher on Friday, resulting in a 2.9% gain for the week. This marked the index’s best weekly performance since November 8, when Trump’s election win sparked optimism for corporate America due to anticipated tax cuts and deregulation under the new administration. The Nasdaq Composite also saw a significant increase of 2.5%, its best weekly gain since early December.
The recent rally was fueled by major banks such as JPMorgan Chase, Goldman Sachs, and Citigroup reporting substantial profit growth over the past year, driven by a surge in trading and dealmaking activities.
Investor sentiment received a boost from the Bureau of Labor Statistics’ release of inflation data showing a modest increase in headline annual inflation to 2.9% in December. Core inflation, excluding volatile food and energy prices, unexpectedly decreased to 3.2% from 3.3% the previous month.
This week’s inflation figures shifted sentiment towards optimism, with Mike Zigmont, co-head of trading and research at Visdom Investment Group, stating that concerns about inflation have subsided, and strong bank earnings have further emboldened investors.
The signs of slowing inflation have reignited hopes for continued interest rate cuts by the Federal Reserve, with the upcoming policy meeting in January likely to focus on this issue. The recent bond sell-off, particularly in the US, has paused, with yields reflecting lower rate expectations.
Florian Ielpo, head of macro at Lombard Odier Investment Managers, noted that the combination of reduced rate risks and improved earnings is favorable for market sentiment, potentially leading to higher equities in the latter half of January.
While December’s softer inflation numbers may delay immediate rate hikes, Bank of America strategist Aditya Bhave emphasized the strength of economic growth, consumer spending, and the job market, suggesting that the Fed’s cutting cycle may have reached its end.