Stocks moved higher at the end of a tumultuous week, as investors balanced the welcome easing of China’s strict pandemic policies, which have roiled global supply chains, against an expected pullback from Thursday’s market surge.
The S&P 500 rose 0.9 percent on Friday, supported by a loosening of some pandemic policies in China, like shorter required quarantine times for international travelers, even as the government remained committed to its “zero-Covid” policy. Those policies have strained supply chains and stoked inflation, weighing on financial markets.
Hong Kong’s Hang Seng Index rose 7.7 percent on Friday, its best one-day performance since March, while the mainland CSI 300 index rose 2.8 percent.
The rally in China gave another push to the stock market in the United States, adding to a 5.5 percent gain for the S&P 500 on Thursday, the biggest increase for the index since April 2020. The big move came after the Consumer Price Index showed prices rose by less than expected in October, cementing investors’ expectations that the Federal Reserve would soon slow the pace of interest rate increases that have raised borrowing costs for companies and consumers.
However, trading on Wall Street was more “sober” on Friday, following Thursday’s “euphoria,” said Paul Christopher, the head of global market strategy at the Wells Fargo Investment Institute. While stock markets were open for trading on Friday, the bond market was closed for Veterans Day.
Inflation F.A.Q.
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
“It’s the hangover day where we realize yesterday was a little excessive,” Mr. Christopher said.
As stock markets extended their gains on Friday, Seema Shah, the chief global strategist at Principal Asset Management, said that an expected pullback from Thursday’s sharp rise had been tempered by the positive news out of China.
“When you do see these really big days, the following day is often a down day,” she said. “The reason the market isn’t down today is that China news. It’s following through.”
The markets also weathered another jolt from the crypto industry, with the embattled exchange FTX filing for bankruptcy on Friday. The company’s rapid downfall has upended the crypto world, with the price of Bitcoin falling by about 20 percent during the week, which began with FTX’s chief dismissing reports about the exchange’s precarious financial position.
And the uncertain outcome of Tuesday’s midterm elections, with control of Congress still unclear as votes continue to be counted in close races, waned in importance relative to other developments, investors said.
The tech-heavy Nasdaq Composite rose 1.9 percent on Friday, adding to a jump of more than 7 percent on Thursday and putting the index on track for its best weekly performance in several months.
Understand Inflation and How It Affects You
The inflation data on Thursday has cemented expectations that the Fed will raise interest rates by half a percentage point when it meets in December, less than the bumper three-quarter-point increases at each of its four previous meetings. Investors have also lowered their expectations for the peak in the Fed’s policy rate next year.
But Fed officials recently cautioned that with inflation near 40-year highs, the Fed’s campaign to slow the economy through higher interest rates is still far from over.
That caution seeped into markets on Friday.
Some investors said that the rally on Thursday had been amplified by investors unwinding bets that interest rates would rise higher, dragging Treasury yields — which are sensitive to interest rate expectations — lower and propelling stocks higher.
Data from JPMorgan this week pointed to their clients’ increasing positions that would benefit from a rise in Treasury yields. When these trades are unwound it has the opposite effect, pulling yields lower. The two-year Treasury yield fell more than 0.3 percentage points this week, to 4.32 percent.
Investors have been burned in the past by prematurely betting on a peak in inflation. The S&P 500 rallied sharply from mid-June to mid-August, before a stern warning from the Fed chief, Jerome H. Powell — later supported by data showing inflation continuing to accelerate — sent stocks tumbling again. The S&P 500 is down by roughly 17 percent this year.
The latest inflation data “was a great number, but then reality sets in,” Ms. Shah said. “We need to see further evidence of a quicker than expected slowdown in inflation.”
Joe Rennison
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