(Bloomberg) — A flood of data showing the resilience of the U.S. economy gave stock markets their best week this year, with dip buyers jumping in after a recent slump.

Most read by Bloomberg

Stocks rose on Friday, with the S&P 500 extending its seven-day rally to 6.8% – the best performance in such a period since October 2022. Just a week before Jerome Powell’s speech in Jackson Hole, Wyoming, traders are hoping the Federal Reserve chief will set expectations for the next monetary policy meeting. While officials have lowered inflation, the labor market is still a wildcard.

Listen to the Here’s Why podcast on Apple, Spotify, or wherever you listen.

The stock market ended a four-week losing streak caused in part by concerns that the Fed would not cut borrowing costs quickly enough to prevent an even deeper slowdown in the world’s largest economy. Data this week showing easing inflation and a resilient consumer have revived hopes that the Fed can pull off a soft landing.

“This week’s reassuring inflation data has boosted investor confidence and led to a significant increase in market optimism,” said Nationwide’s Mark Hackett. “The ongoing ‘buy the dip’ mentality remains as investors who had held off over the last month were quick to get back in.”

The S&P 500 rose to around 5,555 points. Most megacaps gained, led by Nvidia. Nike recorded its longest winning streak in more than eight years. Applied Materials fell after a sales forecast that disappointed investors who had expected larger gains from investments in artificial intelligence. Wall Street’s “fear indicator,” the VIX, fell below 15.

Yields on 10-year U.S. Treasury notes fell three basis points to 3.88%. The dollar posted a third straight day of losses – its longest losing streak since March. Hedge funds bet on the Japanese currency for the first time since 2021 after sharp swings in foreign exchange markets caused a collapse in a popular yen trade.

Gold prices crossed above $2,500 on hopes that the Fed is moving closer to cutting interest rates.

Given the recovery in U.S. stock markets, this summer’s sell-off resembles a pause in the bull market rather than the beginning of its end.

Of course, traders are having a hard time predicting which way the economy is headed – and the recession fears that caused the recent decline could resurface as quickly as they faded. In addition, the US election and geopolitical tensions are adding further uncertainty. But there are some reassuring signs beneath the surface.

The story continues

Among them: The sell-off hit a relatively small part of the market and was nowhere near as broad as the declines triggered by Fed rate hikes, the pandemic and other pivotal events. And while valuations risk being recalibrated again if the economy does indeed sputter, the S&P 500 remained above a threshold throughout the recent decline that — at least to technical analysts — signals continued investor confidence.

While positioning and macro factors are driving positive market sentiment, investors should still focus on buying high-quality assets, says Tony Pasquariello of Goldman Sachs Group Inc.

“The speculator community has caught up a lot since the July highs,” Pasquariello wrote in a note to clients on Friday, citing Goldman’s prime brokerage data, which tracks hedge fund positioning, as well as the latest update from the Commodity Futures Trading Commission.

“The week was essentially a one-way street that severely punished pessimistic forecasts,” said Florian Ielpo of Lombard Odier Investment Managers. “Nevertheless, economic data continues to be fraught with contradictions. Significant uncertainties remain, cautioning against excessive optimism.”

Ralf Preusser of Bank of America Corp. says the next few weeks will likely determine whether the Fed will cut interest rates by 50 to 75 basis points this year or whether it will be even more drastic.

“We remain optimistic on US interest rates and would view a Jackson Hole-triggered sell-off as a buying opportunity,” he noted.

Five big questions for the Fed in Jackson Hole: Bill Dudley

Fed Chairman Powell will speak at the Kansas City Fed’s Jackson Hole Economic Policy Symposium next Friday.

With the central bank on the verge of cutting interest rates from more than two-decade-high levels, Powell’s comments will be closely watched for clues about how the Fed chief views the economy following a weaker-than-expected jobs report and a further slowdown in inflation.

Prices in the swap market have stabilized, implying an easing of about 30 basis points next month and about 93 basis points by year-end. That’s a big drop after traders earlier this month had suggested Fed rate cuts of more than 150 basis points by 2024.

“Investors will also be looking for clues as to whether Powell is leaning toward a 25 or 50 basis point rate cut,” said Ian Lyngen of BMO Capital Markets. “We are definitely in favor of a 25 basis point cut and expect the chairman to err on the side of flexibility by using the tried-and-tested ‘data-dependent’ approach.”

“We expect Powell to signal that the Fed is likely to ease policy next month given recent progress – but without committing to the magnitude of the rate cut,” said strategists at TD Securities. “We expect a cut of 25 basis points.”

While recent data suggests that a 25 basis point cut in September looks more likely than a deeper cut, the next jobs report will be crucial to the final decision as the Fed places increasing emphasis on the labor market, says Fawad Razaqzada of City Index and Forex.com.

“The main message in Powell’s speech will likely be that overall monetary policy has worked as designed and the current level of interest rates is tight,” said Anna Wong of Bloomberg Economics. “He may say that the risk ratio between the Fed’s mandates – employment and inflation – is roughly balanced. We expect him to announce a rate cut, but not to say whether it will be 25 basis points or 50 basis points. That will depend on the August employment report.”

The more I think about and discuss the likely outcomes of next week’s Jackson Hole meeting, the more I come back to this concern: that Chairman Powell will tell us to “curb our enthusiasm,” said Steve Sosnick of Interactive Brokers.

“It hardly seems appropriate for Chairman Powell to reiterate (the market’s) likelihood (of more than three rate cuts this year) in his speech at Jackson Hole next week, given that that would put him well ahead of the last summary of economic forecasts, just weeks before the next one is due,” he noted.

Company highlights:

• Mastercard Inc. is cutting 3 percent of its workforce worldwide, according to a spokesman for the payments network.

• Boeing CEO Kelly Ortberg met with union representatives in his first week on the job and said he was “committed to reshaping the company’s relationship with workers” as the U.S. plane maker enters crucial labor negotiations next month.

• Fox Corp., Warner Bros. Discovery Inc. and Walt Disney Co. were blocked by a judge from launching their sports streaming service a week before the service was due to launch, a setback for their smaller rival FuboTV Inc.

• Texas Instruments Inc. will receive $1.6 billion in grants from the Chips Act and $3 billion in loans, the Biden administration said Friday, the latest major grant under a program to boost American semiconductor manufacturing.

• Rivian Automotive Inc. has paused production of the electric delivery van it makes for Amazon.com Inc. due to a parts shortage amid the electric car maker’s recent supply chain issue.

• Bayer AG shares jumped after the German company won a major victory in a long-running cancer trial over its weed killer Roundup.

• A combined Covid-flu vaccine developed by Pfizer Inc. and BioNTech SE has missed one of its targets in a late-stage trial, a setback for the companies seeking lucrative new uses for a technology that has proven its worth during the pandemic.

Some of the key market movements:

Shares

• The S&P 500 rose 0.2% at 4 p.m. New York time

• The Nasdaq 100 remained little changed

• The Dow Jones Industrial Average rose 0.2%

• The MSCI World Index rose by 0.5 percent

• The Bloomberg Magnificent 7 Total Return Index rose 0.2%

• The Russell 2000 Index rose 0.3%

Currencies

• The Bloomberg Dollar Spot Index fell 0.5%

• The euro rose 0.5 percent to 1.1024 dollars.

• The British pound rose 0.7% to $1.2945.

• The Japanese yen rose 1.1% to 147.69 per dollar

Cryptocurrencies

• Bitcoin rose 5.4% to $59,726.35

• Ether rose 2.8% to $2,621.09

Bonds

• The yield on 10-year government bonds fell three basis points to 3.88%.

• The yield on German 10-year bonds fell by two basis points to 2.25 percent

• The yield on British 10-year bonds remained almost unchanged at 3.93%

Raw materials

• West Texas Intermediate oil fell 1.8 percent to $76.74 a barrel

• The spot price of gold rose 2.1% to $2,507.76 per ounce

This story was created with the assistance of Bloomberg Automation.

– With support from John Viljoen, Richard Henderson and Felice Maranz.

Most read by Bloomberg Businessweek

©2024 Bloomberg L.P.