Following a recent pullback, stocks rallied strongly on Friday. Major averages surged, with the Dow Jones and S&P 500 achieving their highest closing levels since their record highs in mid-July.
Despite some early gains being lost, the markets showed renewed strength later in the session. The Dow climbed by 462.30 points, or 1.1%, to close at 41,175.08. The Nasdaq jumped by 258.44 points, or 1.5%, finishing at 17,877.79, and the S&P 500 rose by 63.97 points, or 1.2%, ending at 5,634.61.
This strong upward move capped off a noteworthy week for the major averages. The Dow increased by 1.3%, the Nasdaq by 1.4%, and the S&P 500 by 1.5%.
The rebound on Wall Street was fueled by anticipated remarks from Federal Reserve Chair Jerome Powell. Speaking at the Jackson Hole Economic Symposium, Powell indicated that the central bank is prepared to lower interest rates, stating, "The time has come for policy to adjust." He emphasized that the timing and pace of rate cuts would depend on incoming data, the evolving economic outlook, and the balance of risks.
Powell's comments suggest growing confidence that inflation is returning to the Fed's 2% target. Consumer prices increased by 2.5% year-over-year in July, signaling progress towards the Fed's goal after previous stagnation.
Recent inflation data has strengthened expectations that the Fed will cut interest rates at its next meeting in September. Mike Fratantoni, MBA SVP and Chief Economist, noted, "Chair Powell just rang the bell to start rate cuts," emphasizing that while data will guide the pace, a rate cut is imminent in September, potentially the first in a series over the next 18 months.
The CME Group's FedWatch Tool indicates a 65.5% chance of a quarter-point rate cut and a 34.5% chance of a half-point cut at the September 17-18 meeting.
Minutes from the Fed's late July meeting revealed a broad consensus that lowering rates would be appropriate if inflation data met expectations.
In economic news, the Commerce Department reported a substantial increase in new home sales in July, which rose by 10.6% to an annual rate of 739,000, marking the highest rate since May 2023.
Sector Highlights
Airline stocks experienced a substantial boost, with the NYSE Arca Airline Index rising by 3.7%. Housing stocks also showed considerable strength, reflected by a 3.7% increase in the Philadelphia Housing Sector Index, driven by optimism over lower interest rates and a spike in new home sales. Oil service stocks saw significant gains as crude oil prices recovered, lifting the Philadelphia Oil Service Index by 3.1%. Additionally, networking, semiconductor, and telecom stocks performed well, along with most other major sectors.
Global Markets
In global markets, the Asia-Pacific region showed mixed results on Friday. Japan's Nikkei 225 Index rose by 0.4%, while Hong Kong's Hang Seng Index declined by 0.2%. European markets were mostly higher, with the U.K.'s FTSE 100 Index up by 0.5%, and the French CAC 40 Index and German DAX Index rising by 0.7% and 0.8%, respectively.
In the bond market, treasuries moved higher in response to Powell's speech. Consequently, the yield on the benchmark ten-year note, which moves opposite its price, fell by 5.5 basis points to 3.807%.
Outlook
Looking ahead, reports on durable goods orders and consumer confidence may draw attention early next week. A report on personal income and spending, which includes the Fed's preferred inflation metrics, is likely to be a focal point later in the week.
