Stocks experiencing best stretch of the year

The stock market has notched the year’s best stretch of gains, as investors take comfort from early signals that inflation is slowing and the economy is holding up.

The S&P 500 rose 1.7 percent Friday, taking its rise for the week to 3.3 percent and marking its fourth consecutive positive week, a feat it had not achieved since October. The index is now more than 16 percent higher than its low point in June, although it remains 10 percent lower for the year.

The rally stands in stark contrast with the first half of the year, when Wall Street suffered its worst start in a half-century, as the war in Ukraine, soaring energy costs, rising interest rates and rapid inflation galvanized investors’ fears about the health of the economy.

In the past month, investors have welcomed data that showed cooling inflation, a robust labor market and resilient company earnings. Having braced for the worst, improvements in the economic outlook are being met with relief.

Federal Reserve officials have suggested that their campaign of interest rate increases to tame inflation is not yet done. But some investors see recent economic data as grounds for the central bank to move less aggressively, easing worries that higher borrowing costs could push the economy into a severe downturn.

“The peak of freaking out about inflation and interest rates is done, and we are looking at something that is not quite as dramatic,” said Michael Purves, founder and CEO of Tallbacken Capital.

The latest consumer price index report, released Wednesday, offered a moment of relief for Wall Street, as inflation slowed to 8.5 percent for the year through July, down from a 9.1 percent pace the previous month. The data offered an early indication that the Fed’s attempt to rein in inflation may be having an effect.

What’s more, data showing that the economy in July regained all the jobs lost in the pandemic, along with weeks of better-than-expected earnings reports from companies, has soothed some concern among investors that higher rates could cut more deeply into corporate America.

The CBOE Vix volatility index, also known as Wall Street’s “fear gauge” because it reflects a sense of investors’ uncertainty over stock market moves, dipped below its long-term average of 20 points this week. The Vix had stayed above that mark since April.

“We’ve seen a succession of inflationary pressures begin to roll over,” said Patrick Palfrey, a senior U.S. equity strategist at Credit Suisse, adding that this is “forcing” investors to reevaluate their trading positions.